Commercial Rural Bank’s role in development

Press, 17 April 1979, Page 21

Commercial Rural Bank’s role in development

; The rural sector is, and,; > will remain the major source 1 ’ of New Zealand’s overseas' ; income. However, it is going) ) to require increasing finan-1 ’ cial investment on suitablei terms if it is to maintain > productivity and viability, j says the Rural Bank in a reI port outlining its activities. The funds for investment ■ in agricultrual production , are being largely supplied by '■ an organisation which may be small in manpower, but ! is becoming very large in , economic muscle. Last year, the Rural Banking and Finance Corporation invested a record 5227.9 M in New Zealand’s primary industries. This was a 47 per cent in- , crease on the previous year, ’ and an almost 400 per cent :j increase on the amount for .{1974, the year that the bank 5 was established, taking over lithe rural lending 'functions pof the State Advances Cor,fpo ration. -| This injection of capital ■jwent to farmers, and other II qualified borrowers for farm ! purchase and development, I for the purchase of agricultural plant and equipment, and to buy and build fishing boats, equipment and fish processing facilities. It also went to loans for export development, livestock incentive schemes, {refinancing of farm debt, seasonal finance, and finanjcial assistance for flood and| {drought relief. { The Rural Bank’s main) {function is to make loans! and provide other assistance] Ito farming, other primary) ) industries and service in-) idustries related to them, and 1 in the five years it has been operating it has proved to ; be one of New Zealand’s “success stories” in the ■ ] economic field servicing] 'agriculture. In 1974, it took over! {assets of about S42OM from! ) the State Advances Corpor-) jation, including office buildI ings in Whangarei, and Hamilton, It is now represented in 20 cities and I towns with new buildings | planned for completion this I year in Gisborne, Nelson, ;and Rotorua. 1 Its mortgage assets, com{bined with other investments I in Government, various I securities and office buildings now give a total asset i figure of more than SB26M. {The funds used by the Rural! I Bank come from Govern-] I ment loans, and its own] funds. The influence of the Rural! Bank’s policies in the farm-1 ing sector in New Zealand is I shown by the fact that more than 30,000 farmers, sharemilkers, and other borrowers, such as in the rural and fishing industries currently have loans with the bank, j The bank is New ZeaI land’s first finance corporation which is devoted en-j tirely to the rural sector. 1

.{For many years there was /debate as to whether New / Zealand should have a bank J specialising in the rural sector, able to concentrate exclusively on the needs and 1 problems of farmers, as well , as those servicing agricul- ■ ture. Despite this debate, over : the years stretching back to 1 the days of “King Dick” ' Seddon, the various Govern- ■ ment offices providing rural finance have played a vital 1 part in national devel- , opment. Rural lending by Govern--1 ment began in 1894 with the • Advances to Settlers Act which founded the State Ad- • vances Department to lend . money on the security on : rural land. Loans at 5 per ■ cent interest were to be re- ; paid over 36-1 years, and in • the early years most were ; for refinance and develop- ■ ment. In 1913 the State Ad- . vances Act was passed set- ■ ting up the State Advances 1 Office whose prime functions were advances to settlers, workers, and local authorities. The State Advances Office under the Mortgage Corporation Act.) 1935, became the Mortgage Corporation of New Zealand with half the S2M share capital being subscribed by the public. It was to have a short life. | After the election of the I first Labour Government in {1936 the name of the corI poration was changed to the 1 State Advances Corporation, {and the private share capital I of SIM was acquired by the Government. By the 1960 s there was a growing feeling that rural) interests were being over-! {shadowed by those of city! [dwellers, and as a result, the] I corporation took steps to) [separate rural and urban, [interests. There was a shift) away from the emphasis on] purchase-lending, and the) over-all policy was enlarged to provide more loans for! development, and other ways] of increasing production. I The Government took i major steps to improve the' financial position of the; rural sector by setting up in 1970 a Special Agricultural Assistance Fund to provide! $lOOO loans to farmers in{ financial difficulties, and in: the following year, the in-1 Production of the Sheep] | Farmers’ Supplementary Fin-1 ) ance Scheme to provide re-' [lief, because of falling over-;: I seas returns in meat and! I wool. In 1969 the Corporation] had established a separate]: Rural Division and, in 1972' the Rural Advisory Board] was established. This board!, was directly responsible to] the corporation directors “to formulate and supervise pol-l icy in relation to farm len-L | ding through the corporat-L lion’s Rural Division.” . — ‘

; It operated for just over) ; two years until the estab-' t lishment of the Rural Bank] • which took over all rural! - mortgages and assets from I the State Advances Corpor--1 ation, which itself was to be • abolished in a further six months by the formation oi • the Housing Corporation. > The Advances to Settlers Act of 1894 was the start oi ■ rural lending. Then, as now. I the chief aims of rural fini ance were to increase agri- - cultural production and give stability to the lending mar- - ket. : But the days are well t gone when production was ■ increased merely by settling 1 and tilling more land. Todaj, > the farming industry ex- ’ tends well beyond the farm gate and rural issues de1 mand highly specialised skills to obtain the best allocation and use of resources. Young men entering the • farming industry today need • finance on reasonable terms > just as they did over 80 ■ years ago. Their future will depend on continued effi- < ciency and applied tech- ( nology, on new marketing ' skills, and on the expansion | of industry related to prim- 1 ary products. Therefore, economic stabil- 1 ity in the rural sector is 1 more important than ever and, these are the issues . which concern the Rural | Bank. Since its inception, ; the bank has introduced 1 many new policies and has 1 significantly expanded the 1 old. It aims at securing an , increasingly strong and , dynamic rural sector, and policy is designed to meet . [this objective. FARMING I The purchase of farms for ' [initial settlement by energe- ' J tic farmers capable of lifting ' {production uses a large pro- < I portion of the bank’s avail- 1 [able funds and, in fact, dur- : ling the last financial year a 1 'record number of 1154’ farm- 1 [ers were settled. As demand 1 { usually exceeds these funds, > [ not all applications can be [granted. , I Preference is given to ap- , ■ plicants such as share- | milkers, farm employees , and farmers’ sons who are ( 1 purchasing a first farm and . {to farmers purchasing addi- j itional land to make an existI ing unit economic. Those [who do not meet the criteria . I for settlement on their first farm are usually directed to) 1 I other lending institutions. j What the bank looks for 1 [when considering a loan are/ j the applicant’s ■ qualifications I 1 {and experience in the type,' {of farming he proposes, per-,' isonal contributions, such ash leash, stock or land, the]: ! price being paid, other bor-l] rowing, and whether farm] learnings will cover com- 1 mitments such as loan/ charges, farm expenses, and), ja reasonable standard of liv-|j ling for the applicant and his'; family. ) ; While most loans arej granted to purchase self-con-]’ 1

[tained viable units, an in-i ; novation has been the grantI ing of loans for small hold-j I ings as a stepping stone to 1 farm ownership, and to help { retain competent workers in I the industry. During the last financial! year, 74 farm workers were: settled on these “stepping] stones” units at a cost of 51.96 M. The “stepping stones” are not fully econ- { omic units in their own [ right, but they do allow] young people to get a start in farming, and enable them to build up a worth-while { contribution towards the I purchase of an economic I property later. The bank has two types of loans — standard settlement — and the special settlement scheme, introduced in 1976. Under standard settlement, the bank’s guidelines are $70,000 for dairy farms, $95,000 for sheep and cattle farms, $95,000 for mixed cropping farms, and $60,000 for horticultural and other intensive units. These amounts can be exceeded in cases of exceptional merit. For standard settlement] loans, the bank normally lends up to two-thirds of the market value of land, plus two-thirds of the market value of the stock. The special settlement] scheme is bringing first farm ownership to energetic, and well-qualified farmers of! modest means who would, not otherwise have the chance of buying their own property. Under this scheme, the bank as at March 31, 1978. has settled 190 farmers since it was introduced.

Guidelines for amounts which can be lent under this loan scheme are $200,000 for a sheep farm, $120,000 for a dairy farm and $BO,OOO for other types of agricultural property. These guidelines are flexible and can be ex-

tended in cases of particular merit. These loans can be up to 85 per cent of the bank’s valuation of the property. For both type of loans the current interest rate is 81 per cent with a concession to 74 per cent for the first three years, which is reviewable every three years, and terms are up to 25 years on a table basis. DEVELOPMENT Development lending has a high priority with the Rural Bank, because of the national .emphasis on increased production and export. A flexible [approach is taken in development lending, but applicants I are expected to have sufficient ability and skill to comIplete the project, and attain [an acceptable level of future (production. { Development work con(cems clearing, grassing, fencing, topdressing, housing, {farm buildings, roading, [planting, water supply, irrigation and purchase of stock {and essential plant. I The main criterion for de- 1 velopment lending is that the! property can be developed to a viable unit capable of providing the farmer with a reasonable living, maintaining the development achieved, and meeting the total commitments involved. With development projects, the bank’s highly qualified field staff can where essential provide an advisory service to the farmer, on technical, {financial and management {aspects at both the planning.: [and follow-up stages. Stock and plant loans are available to assist sharemilkers, sharefarmers, and holders of short-term leases to purchase stock and plant,

the bank's aim being to help these farmers accumulate assets and experience towards farm ownership. Another innovation by the bank has been the introduction of the livestock incentive

i scheme in conjunction with !the Ministry of Agriculture! ;and Fisheries. Since its introduction in the 1976-77 finan- ; cial year, it has been a sig- : ’nificant factor in increasing! i livestock numbers on the! 'properties involved. The scheme provides an [incentive to farmers with [either unused carrying capac-1 [ ity or land for development j Ito increase production by increasing the number of livestock carried on their proper-I ties. RELIEF Banks are not usually known for being softhearted. but the Rural Bank is always willing to give sympathetic consideration to farmers in financial difficulties for reasons beyond, their control. When a situ-' ation appears hopeless, the! bank may offer temporary! financial relief to allow the farm to be sold later under more favourable conditions. ; Any farmer will say that! you cannot depend on the weather and the Rural Bank’s climatic relief loans. provide emergency assistance to enable farmers to: continue operations following severe loss or damage due to the weather. Here the bank considers the need rather than the security available and often grants assistance when in normal circumstances a loan would be declined on grounds of high risk. INDUSTRIAL Industrial lending by the Rural Bank has expanded rapidly and, with New Zea-| land's economy strongly: dependent on the health of! its primary industries, this type of lending will play an I even greater role in the fut-l

tire. Industrial loans are avail-! able for the establishment; of new types of industry,! and the expansion of exist-’ ' ing industries which have an j ' export potential and/or! ' regional development pros-, ' pects; the establishment of veterinary clinics or other! activities where the project! , will service the rural sector;' I and the provision of packing i sheds, cool stores, grain . dryers, storage, fish process- , ing plants, facilities for wool ! processing. ; FISHING Substantial amounts are ■ lent to fishermen to pur-, i chase suitable existing ves-i i seis or to build new ones.; During the last financial! • year, the Rural Bank fin-! • anced the building of 20 new | , fishing vessels, and the! number of loans granted . rose from 45 for 1976-77 to 104 at a total cost of SBM in! 1977-78. Finance is also available! , to purchase equipment for , catching, handling, storing, freezing and discharge of fish, and there are other ! actipities in which the Rural Bank gives assistance. William Shakespeare said ‘‘Neither a lender nor a borrower be,” but despite his moral advice, the rural sector of New Zealand would be in a sad state without thei activities in which the Rural Bank. It is essential to New Zealand's future that continI uing investment in the rural sector is maintained and, encouragement given to! assist productivity. This is j the vital and specialised I role of the Rural Bank, the , report concludes. j