KEY POINTS:
Federated Farmers has accused banks of profiteering and price gouging by not passing on interest rate cuts made by the Reserve Bank.
The Federation said farm businesses had received only about half the 150 basis points cut from the Official Cash Rate since December 4. A Federation survey of business overdraft interest rates, with 345 usable responses, showed rates had been cut by an average of 78 basis points.
Federation economics and commerce spokesperson Philip York said the farmer body was extremely disappointed that the average overdraft rate for farm businesses was 10.4 per cent, or more than twice the OCR.
"That's a massive margin banks have and continue to build at the expense of the productive export sector," York said.
"By cutting overdraft interest rates by only around half that cut from the OCR last December, there appears to be a degree of profiteering. The banks are price gouging farmers who generate most of New Zealand's export wealth."
Farmers largely received seasonal payouts and depended on overdraft facilities to meet financial commitments throughout the balance of the year, he said.
"By not passing on OCR savings to their business customers, banks are putting a brake on the ability of businesses to retain profit, reduce debt and retain staffing levels in the current economic climate."
The Reserve Bank is widely expected to cut the OCR next week from its rate of 5 per cent.
Westpac head of agribusiness Dave Jones said it was a complex situation and current events should not be viewed in isolation.
Westpac continued to underwrite a lot of the increased funding costs, less than 20 per cent of the bank's agri book balances were on floating interest rates and many people had benefited from lower term debt interest rates, Jones said.
"Furthermore, in the rising interest rate environment experienced over the past four years we slowed the pass through of our rising costs to farmers and in fact narrowed our margins through that period for the benefit of the sector but to a level that was never going to be sustainable for the long term," he said.
Although base funding appeared cheap there was a funding gap within banks - the difference between what was lent and generated in the local market to enable that lending - which was funded at a large premium via offshore means, Jones said.
"The credit crunch has resulted in a repricing of risk internationally, and tightening in the flow of money."
UBS senior economist Robin Clements said a byproduct of the credit crisis was that banks that accessed global markets had faced far greater difficulty in securing funding, which was also more expensive.
"This is the core of the credit crisis, banks and financial institutions being unwilling to lend to each other," he said.
"There is a concern and that's being reflected in the actions of the central banks who are pushing these cash rates far lower than they've ever been before."
