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As a follow-up to the Agri Banking Dashboard that we recently circulated, we thought we’d share a couple of graphs illustrating the changes since 2018.
Firstly, market share changes since 2018:
The most evident observation is the decline in market share of the main lender ANZ during this period, and the rapid increase of the Agri only lender Rabobank, which now sits in second place overall.
On average, Rabobank is growing at 5.0% p.a since 2018 and ANZ is dropping 2.3% p.a. At these rates, in a little over a year, Rabobank will become the largest Agri Lender in New Zealand.
Most other banks have largely maintained their market share, but two have experienced reversing fortunes. BNZ was notably declining until 2021 and then rebuilt it’s position. Conversely, Westpac, having grown significantly up until 2021, reversed course to a level similar to where they were back in 2018, and now holds a market share well below the other four main lenders, despite being a similar size.
What’s also interesting is to look at the Agri lending data over the same period in dollar format and what this has meant for each bank in terms of its own growth or reductions.
Capital to the sector has declined by $1.2bn over this period, with most of lending volume coming from Rabobank, followed by Westpac. ANZ have reduced their exposure materially (and to a lesser extent, BNZ).
They’re both interesting graphs but interpreting them is not as straightforward as it seems.
Whilst it might be easy for one to then extrapolate that Rabobank has “supported the sector better” (from a provision of capital perspective), but that would ignore the impacts of regulation and mandate.
Rabobank has a sole focus on Agri (and Agri post farm gate) lending and is largely restricted to these sectors. However, other banks, with their wider mandate to lend to all sectors including housing have been able to fill up on the less capital-intensive home lending, directing focus away from Agri. As a result of the four “major” banks’ focus on home lending, they have enjoyed a higher “return on bank equity” than the solely Agri focused Rabobank. If Rabobank’s mandate allowed them to lend to all sectors, we will never know how their own capital might have been directed.
It might also be instructive to look at Heartland Bank and SBS who were once growing relatively steadily in Agri. However, after the new risk weighted capital regulations were enacted more deeply, they diversified into other types of lending, including home lending. Consequently, Agri growth stalled.
This is not a function of poor Agri lending margins or high operating costs. From a lender profitability perspective, they are both very healthy in Agri lending. Nor is it a function of risk with actual losses for the Agri lenders being very low. This is a function of the higher bank capital requirements when lending to Agri. Furthermore, the focus on home lending growth has resulted in a lack of bank competition for Agri lending which in turn has led to margin increase, well beyond the need to offset any additional capital requirements.
To a certain extent, there have been recent improvements in Agri lending competition with improved appetite among the main lenders, and we await the ongoing deliberations between government and RBNZ on this topic.
As always, welcome your own thoughts on this data.
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