Rural banking has been a pain point for the primary sector, but there has been a positive reaction to the terms of reference announced by the government for the upcoming banking inquiry.

The terms of reference, which will set out the issues the inquiry will investigate, covered most of the concerns around banking facing the rural sector.

Federated Farmers are pleased that the rural sector will be represented during the inquiry with the involvement of the Primary Production Committee, a parliamentary committee that considers matters related to agriculture, horticulture, and other primary industries.

Mid Canterbury Federated Farmers president David Acland said the involvement of the Parliament's Primary Production select committee is 'critical'.

"It's important because it means we get that representation of primary industry at that level."

Federated Farmers has been particularly vocal about rural lending and the higher interest rates charged to the sector when pushing for the inquiry.

"That's been our main focus, the margin banks put on us as risk, and why that margin is bigger."

Richard McIntyre, Federated Farmers national board member and banking spokesperson, expressed his satisfaction with the comprehensive nature of the inquiry, stating that it will 'leave banks with nowhere to hide.'

"This inquiry is well placed to shine a bright light on parts of our rural banking system that, until now, have been allowed to operate in the shadows."

McIntyre said Federated Farmers' concerns about just how 'rural' this inquiry would be had been well and truly put to bed with these terms of reference.

"Everything we hoped to see included is in there, including questions about rural banking competition, transparency mechanisms, credit risk models, and open banking.

"There are also some very specific questions about the return on capital banks are getting from rural lending and the level of interest rates charged to the sector."

McIntyre said that Federated Farmers will be engaging in the select committee process and making a comprehensive submission on behalf of their members.

"Federated Farmers have been leading the charge to get this rural banking inquiry over the line, but there's still a big job to be done," McIntyre says.

"We need to make sure the rural voice stays front and centre during this process so we can find some genuine, practical and rapid solutions that will improve the lives of farming families."

Rural Women New Zealand chief executive Marie Fitzpatrick said the organisation welcomes the inquiry and is pleased to see it will canvas the full range of issues rural communities are experiencing.

"This includes constrained access to lending, high interest rates and the ongoing closure of rural bank branches and ATMs.

"Our members are also concerned there's an over-reliance by banks on digital services as opposed to personal banking services, which is leaving rural communities without adequate support.

"This is especially the case when some rural communities continue to experience poor or non-existent digital connectivity."

Fitzpatrick indicated the organisation will also be making a submission.

"We encourage our members and other rural communities to make their voices heard."

Groundswell NZ has also come out in praise of the scope of the inquiry, particularly around emissions policy.

"Groundswell has been campaigning for Parliament's banking inquiry to include emissions policies, and now the terms of reference published today cover both the Reserve Bank's approach on greenhouse gas emissions and banks' environmental and sustainability policies," Groundswell NZ co-founder Bryce McKenzie said.

Mackenzie said that despite the voting public rejecting policies like the last Government's Farming Tax, the banking sector has been moving towards de facto enforcement of the same kinds of emissions policies.

"On top of overcharging farmers by 2% on average and denying credit to even high-equity farms, now banks are wanting farmers to comply with emissions policies based on outdated models.

"Farmers are in a tough spot at the moment.

“These interest rates and the restrained access to credit hit young farmers particularly hard," Mackenzie said.

By Claire Inkson