Tuesday, 15 March 2016

Bankers aren't farmers

On Radio New Zealand this morning, Andrew Little argued the government should lean on the banks to prevent their foreclosing on dairy farms, warning of that foreigners might swoop in and buy distressed NZ farms. 

A few things to consider:
  • Banks do not want to run farms. If they foreclose, they have to find somebody to run the thing pending auction. There are cows that need to be fed. The bank or the receiver takes on all the health & safety, and animal welfare, liability. The most heavily leveraged ones are the ones that'd be first to go; those are the ones where the banks have the biggest stake, and where the banks would take the greatest share of the loss in a fire-sale. A receiver's fees will include all the farm-running costs.
  • If the bank lets the farmer continue, restructuring payments over a longer period, then the bank does not have to run the farm. Banks are only going to foreclose as a last resort. You could even imagine their wanting to delay foreclosure until selling prices improved. 
  • In Little's nightmare scenario, some rich foreigner comes up to the bank and says "Hey, I'll pay you last year's price for that there farm if you foreclose on it." But that foreign buyer has to jump through a lengthy overseas investment act process if he wants to buy. The foreign buyer has no assurance and can have no assurance as to what the current, and potentially aggrieved, owner will do with the darned thing in the period between the OIA process beginning and the foreclosure. 
  • If I were a bank and I feared that a future Labour government might make it hard for me to foreclose on mortgages held by politically preferred groups, I'd be adjusting my loan portfolio today to guard against that risk. 
I wonder if Donald Trump has yet started warning his rallies about how the Mexicans are going to come in and buy all the farms. "Protecting American farms for good American farmers. We need a wall to keep rich Mexican drug-lords from coming in and buying America's land."

Update: Now Little wants regulations dictating pass-through of RBNZ headline rates to retail interest rates.

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