The major bank has announced three key changes in a bid to better serve its agribusiness customers in regional and rural Australia, after conceding that, in some cases, it has “lost touch”.
National Australia Bank has revealed that it will “proactively” offer its agribusiness customers, which represent 40 per cent of its business customer base, the ability to offset their Farm Management Deposit (FMD) against their agricultural loans.
Speaking at the International Hotel in Wagga Wagga on Monday (23 July), NAB CEO Andrew Thorburn explained that the offset will take the form of an interest rate discount.
“This enables us to quickly respond to issues raised at the recent government drought roundtable, where we were challenged to see what prompt action we could take,” the CEO said.
Mr Thorburn added that NAB is also supporting the use of FMDs as security for additional loans, but this requires legislative changes.
“While this has some challenges, including legislative change, it would give farmers access to additional security as capital to lend against,” the CEO said.
The bank also announced that it will stop charging a default interest rate to customers in drought-affected areas if they get into loan arrears — an issue that surfaced during the fourth round of royal commission hearings.
NAB had recently refuted in its submission to the banking royal commission that its actions towards Queensland cattle farmers Kenneth and Deborah Smith fell below community standards and expectations or amounted to misconduct. In this case, NAB suggested that charging the Smiths millions in default interest over more than five years for not meeting their loan repayment obligations was justified.
However, in his speech on Monday, Mr Thorburn said that the bank has decided that “change needs to occur”.
He said: “Rural challenges are real, and we need to determine how to support these areas better. This is a message we’ve heard loud and clear from farmers and rural customers right across the nation, many of whom have been affected by drought conditions.
“The royal commission and other inquiries reveal that, in some cases, we have lost touch.”
Further, the bank CEO said that NAB will consider how it can bring face-to-face banking services to agribusiness customers in a sustainable way, including potentially opening new branches in remote areas or introducing video conferencing services. NAB claims that half of its branches and banking centres are based in regional areas, which it said is proportionally higher than that of the other big four banks.
“Perhaps, there is more we can do to sustain those services, in conjunction with the community, such as partnerships and alliances. Or perhaps we need to consider changes to how we leave towns, if there is no alternative,” Mr Thorburn said.
“But this is not just about branches, this is about taking a wide view on what more we can do to assist our rural and regional communities to thrive in the future — and could include ‘agtech’, video conferencing and innovation more generally.”
Over the coming months, the CEO said that members of NAB’s senior team will visit regional and rural areas across the country to hear directly from agricultural communities.
NAB has enlisted the help of figures such as Queensland-based Chris Sarra, who is known for his advocacy work in driving better outcomes for Indigenous Australians, and John Anderson, former deputy Prime Minister and sixth-generation farmer, to help the bank “listen better and consider wider views”.
Mr Thorburn said that NAB will report back on the feedback it receives from regional and rural communities and will reveal what the bank will do in response.
The recent changes were welcomed by Federal Agriculture Minister David Littleproud, who praised the major bank for showing “a social conscience”.
“If you’re a farmer whose bank doesn’t offer an FMD offset, you can tell them to bugger off because there are banks now which do,” the minister said.
“I also congratulate NAB on removing penalty interest when a farmer defaults on a payment during drought. I call for other banks to do the same. But it’s also an opportunity for the banking sector to reassess penalty interest as a whole because I don’t think the charge truly reflects the cost to the bank. It’s really a kick in the guts when someone’s down, which isn’t the Australian way.”
Mr Littleproud continued: “Banks have an opportunity to improve their standing in the community and win back some social licence by reassessing these charges.”
The most recent changes at NAB follow an announcement made by the major bank after the fourth round of royal commission hearings about initiatives to support customers affected by droughts in NSW and Queensland, including the suspension of loan repayments and the waiving of fees.
NAB claims that in the three years to 31 March 2018, the bank grew its agribusiness lending balances by $3.7 billion or 59 per cent of the net growth in total agrilending ($6.23 billion).
*Updated on 25 July 2018: Added comments from Federal Agriculture Minister David Littleproud
Tas Bindi is the features editor for The Adviser magazine. She writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.
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