Impact of the Royal Commission on Lending to Agriculture

The final report from the Royal Commission is due out in February 2019. The full impact (or fallout) will filter through sometime after this, as the banks fully digest the ramifications of the final report.

My view is that if your business has high levels of equity and is able to service its loans easily, then its business as usual, and you won’t see any discernible change. Even if you want to change banks and you are in a strong financial position, it most likely won’t cause too many issues obtaining approval.

If you are not in the above category, then it could be quite a different experience. This is all dependant on the final recommendation of the Royal Commission, how regulators such as ASIC and APRA interpret the recommendations, and which recommendations the government of the day accepts from the report. I think most importantly, how the banks react to the new landscape, that’s the big unknown!

An example maybe where you purchase another property and this puts the business outside standard lending ratios for a period of time. Every case is different, but in the past if a sound business case was put up, these types of loans were generally approved. They still may, but with much higher levels of scrutiny.

Profitable, well run banks are crucial to the Australian economy. The last thing agriculture needs is for the local banker to be paralysed by red tape and unable to make decisions they are used to making.

Hopefully we won’t, but there is a chance we could end up with a potential credit squeeze by default. Business lending most likely won’t have the same scrutiny as home lending. Business lending has always been heavily assessed, as every situation is different. Whereas   home lending generally has a more automated approval process with fewer checks and balances.

It may be business as usual, but I doubt it. The banks may be forced to tighten regulation, or to mitigate potential risk down the track, the banks may tighten lending standards. This is already happening. Over the last 6-8 months there has been a marked increase in the levels of information being requested by banks, and I suspect this is the new norm.

Those businesses that are in a strong financial position are able to negotiate rates similar to home loan rates, but you need to ask and put your business case forward. This has always been the case and this is never more relevant than in the current environment.