Ag's hard times to hit banks

02 Apr, 2013 07:15 AM

BANKS face more loan losses from their exposure to agribusiness, an analyst has predicted, as weak conditions and heavy debts take a growing toll on farmers.

After recent profit downgrades from Elders and Nufarm, a new report by CLSA banking analyst Brian Johnson says banks could bear the brunt of a slump affecting several agricultural areas, especially wheat and live cattle.

With the official forecaster also predicting lean times for farmers, Mr Johnson wrote that a growing number of agribusiness borrowers could come under pressure from high debt levels and falling land prices.

Mr Johnson's report argued that waves of bank loan losses in cyclical industries were caused by ''euphoric'' lending in good times, followed by credit rationing when conditions soured.

''Australian bank agricultural lending portfolios demonstrate this cycle better than most, with loan losses set to rise,'' it said.

Particular pressure points included northern Australian beef production, hit by weak exports and falling land prices, and the drought-affected West Australian wheat belt, the report said.

NAB is Australia's biggest agribusiness lender and, the report noted, ANZ also has a higher exposure to primary industries.

Latest figures from banks suggest asset quality remains strong, but Mr Johnson said ''the reality could yet be worse'' given the pressures on business borrowers from the high Australian dollar, and banks' inability to see loan loss cycles coming.

The prediction comes after agribusiness lender Rabobank last month reported a 10.5 per cent rise $234 million in Australian after-tax profits for 2012, amid ''challenging'' conditions and a rush by borrowers to pay down debt.

The Australian Bureau of Agricultural and Resource Economics and Sciences also expects ''subdued'' conditions in the sector, with export earnings tipped to fall slightly in 2013-14.

Fertiliser maker Nufarm last week slashed its outlook for profits, after reporting a 53 per cent slump in earnings in the first half.

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Love the country
2/04/2013 8:34:23 AM

No sympathy for banks, in the 80's we had a bad run of droughts ect and our bank said we are here to help. Yep at peak they charged us 26 percent interest. We worked hard, spent nothing, and got through,with no help from the bank, looking back they absolutely screwed us.
Bushie Bill
2/04/2013 9:11:06 AM

That wasn't the banks that screwed you, Ltc. It was the Whitlam government, stuffed full of semi-literate half-wits hell-bent on on creating Nivana downunder in three years. We all faced those levels of interest, regardless of our industry.
2/04/2013 10:50:58 AM

Farmers have no idea the pain that is going to come from the deleveraging phase of all this debt. Farmland, machinery and stock prices have the potential to collapse under the weight of it. This is exactly what happened in the US housing crisis in 2007. This is when the big opportunities in farming are created. Excessive speculation on farmland prices rising and miscalculation in the risks of investing in productive capacity (read too much machinery) when timing in the economic cycle is off. buckle up, it is going to get rather stormy.
drowning in debt
2/04/2013 12:17:00 PM

You don't have to tell me there is a debt crisis. That's why I want my CBH equity. It's the only hope I have of staying on the farm.
corporatise CBH
2/04/2013 12:20:34 PM

Time to distrubute equity. Banks don't want this to happen because it's their job to deliver the family farm to the corporates for cents in the dollar anyway. Fight back! Corporatise CBH!
2/04/2013 4:02:41 PM

I'm dumb. What is CBH?
3/04/2013 6:33:18 AM

Rural farm prices don't reflect true value, they are way overpriced by about 50% so any fall will be a good thing.
3/04/2013 10:52:13 AM

Richard, if farmers were to get only 50pc of the price for their produce then there won't be one farmer left in Australia. Expect all your food to be imported.
3/04/2013 2:51:36 PM

As per the US housing crisis, the price of land has been inflated beyond its productive value, driven by reasons concerning those that don't own the land. As per the US householders, at the same time primary producers have been trained to be consumers of debt and inputs. As per the US householders that now live on the street, watch out when the banks start deleveraging (removing) themselves from this situation.


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Good observation Itz Me. As big as it is this fleece will pale into insignificance if the Paris
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Agree 100 % with Ed Story. Jock, buy a full length mirror and have a good look at yourself.
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looking under beds for red herrings and ranting at every shadow about trade agreements is a sign