Banking royal commission: softer path urged for farmers in debt

A national farm debt mediation scheme will be set up to intervene in disputes between distressed farmers and banks.

Nationals senator John Williams.

A national farm-debt mediation scheme will be set up to intervene in disputes between distressed farmers and banks, with lenders urged to stop charging crippling rates of interest on agribusiness borrowers teetering on default.

The royal commission also recommended ensuring that liquidators and receivers are appointed to sell distressed farming land as “a remedy of last resort”, and enshrining the provision in the ­industry’s code of practice, which the government supports.

Rushed takeovers of agribusiness lenders by the big banks, that pushed thousands of farmers off their properties when they were struck by drought, floods or crashing cattle prices after the government’s live export ban, were a powerful force behind the establishment of the royal commission.

Renegade Nationals MPs and One Nation senators had pushed the government to launch the commission after being inundated with angry farmers who had been turfed off properties that had been in their families for generations.

The government proposals were instantly welcomed by ­Nationals senator John Williams, who said banks were already improving their culture by ending so-called “default interest” being applied to drought-stricken farmers.

“We’ve got a severe drought in the country,” Senator Williams said. “The banks have waived penalty rates. They’ll see the sentiment change … as a result of the royal commission. Let’s hope it continues on,” he said.

Josh Frydenberg said a national debt mediation scheme would help lenders and borrowers to agree on practical measures that could lead to borrowers being able to address financial difficulties that pushed farmers into distress.

“The government further supports mediation occurring soon after the loan becomes distressed and not as a last measure prior to the lender taking enforcement ­action,” the Treasurer said.

ANZ’s $2.4 billion takeover of rural lender Landmark in 2009 ­received the most complaints to the royal commission, while the inquiry also looked into Commonwealth’s $2.1bn acquisition of Bankwest in 2008, along with ­National Australia Bank’s habit of charging sky-high rates of default interest, with farmers being slugged as much as 18 per cent on their loans.

The commission also showed banks were trigger-happy in forcing farmers into default and let ­receivers dump properties on to a soft market stung by drought. It heard ANZ agents let land be sold for 30 per cent less than its value.

Commissioner Kenneth Hayne has told the Australian Bankers ­Association to amend its code of conduct, which would be made enforceable with the Australian ­Securities & Investments Commission, to ban default interest on drought-affected farmers and those beset by natural disasters.

Banks would also be required to ensure agribusiness loans are managed by bankers with proper experience, to stop a practice of sending junior bankers out to the bush to work their way up the corporate ladder.

Appointing receivers would also be less common under provisions that would require banks to manage distressed loans in the best result for the bank and the borrower, while leaving enforcement as a worst-situation outcome.