NAB's rural banking pledge puts pressure on rivals to help farmers

Federal Agriculture Minister David Littleproud  has applauded NAB for “having a social conscience”.

Mr Littleproud called for other banks to get on board and show some leadership to farmers facing drought, starting by letting producers use their farm management deposit (FMD) earnings to offset interest costs on loans.

He has also praised NAB for no longer charging drought-ravaged farmers interest penalties when loan repayments cannot be met.

Australian farmers have about $6.6 billion salted away as emergency savings in FMDs, but until now only Rural Bank has offered an FMD interest offset provision linked to its loans.

Despite resisting previous farm sector calls for FMD offset options, NAB has now confirmed it will “proactively offer” its agribusiness customers the chance to offset their deposit earnings against agricultural borrowings.

Also, in response to the pressure following Royal Commission hearings into financial industry activities and treatment of customers, NAB has stopped penalising farmers in drought areas if they default on loan repayments.

Other major lenders are fairly reluctant to comment publicly about NAB’s move, although some said they were looking at options relating to their own FMD facilities.

Industry officials also noted default penalties for unpaid loans were not universally imposed by banks in times of hardship such as drought or flood.

NAB managing director, Andrew Thorburn, told customers and staff in southern NSW this week the Royal Commission and other inquiries had highlighted how the bank had lost touch with its customers “in some cases”.

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NAB executives recently objected to claims made to the Royal Commission that their institution had engaged in conduct below public expectations when it accumulated default charges of about $7 million for one of its drought-weary farming partnership customers.

They argued default interest charges were a standard and legitimate feature of bank lending across the industry.

However, on Monday Mr Thorburn said the bank had since decided “change needs to occur” on the issue of default loans.

Customers in government-declared drought regions who fall into loan repayment arrears will now pay existing interest rates without additional fees.

NAB has also promised to re-think how it can retain and innovate its services in regional communities, rather than close branches. 

Mr Littleproud joined farmer bodies congratulating Mr Thorburn for “acknowledging the banks have had issues in rural Australia and stepping up to lead”.

He did not believe default penalty charges truly reflected the cost to a bank and now was a chance for the banking sector to reassess penalty interest as a whole.

“It’s really a kick in the guts when someone’s down, which isn’t the Australian way,” he said.

“Banks have an opportunity to improve their standing in the community and win back some social licence by reassessing these charges.”

Queensland’s AgForce president, Grant Maudsley, is optimistic the current banking Royal Commission is leading to “real action to deliver fair and affordable financing options” for broadacre farmers.

He said it was shining a spotlight on past poor practices, while also looking at how the banking sector could work better with farmers to attract more investment and grow their businesses in future.

"We congratulate NAB and also urge other rural lenders to follow their lead," he said.

NAB's scrapping of higher default interest rates on drought-affected farmers was “very welcome”.

"It’s counterproductive and unfair for farmers struggling to meet repayments to then be hit by even higher charges, which often contribute to foreclosure actions taken by the bank,” Mr Maudsley said.

He also noted AgForce had campaigned for an offset option for FMDs since 2014 and therefore strongly welcomed the move by Australia's largest agri-lender.

Although NAB’s offer will not technically be a direct offset from FMD accounts, it will take the form of a discount on a farmers’ lending interest rate.