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When we made our submission to the Rural Banking Inquiry, we went back into the RBNZ data to look at how each main banks' Agri Lending market share has changed over the last six years.
The changes in market share are really telling, but what’s more interesting is the actual dollars that have been lent (or as the case might be, haven’t been lent) when looking at other sectors such as home lending.
Let’s look at the graph of the market share first:
* The data includes all Agri lending done by each main bank including any parent company branch lending.
The biggest gainer, Rabobank, have moved from 16.27% to 21.68% market share over this period. In that time, they have moved past ASB, and as of June, have snuck ahead of BNZ to move into second place. *
Westpac has also made some gains over that period (0.81% ahead) although at one stage, they were 2% up but have since lost ground.
ASB have been largely flat during this period.
The biggest loser in market share, ANZ, have dropped 4.5% of market share - from 28.56% to 24.09%, with no interruption to their downward trendline.
BNZ has also shed 1%, although they have regained from a lower point of 2% from two years ago.
When we start looking at the actual volume ($’s) of lending we can see the major issue with NZ capital flows.
The below table shows the change in lending volumes from each bank over the same period from 2018 to 2024 for both Agri and Home Loan lending.
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Put plainly, this means that over the last six years, whilst $111bn extra dollars have been advanced to housing, the main NZ banks have only allocated $2bn to Agri. |
Take out the dedicated Agri Lender Rabobank and it’s even worse - it means that over that period, the main banks have collectively reduced lending to the Primary sector by $1.5bn – even though this is the powerhouse of our export revenue. This is made worse as this reduction was at a time when there was a significant expansion of credit both world-wide and in NZ, meaning Agri unnecessarily suffered as an investment class.
NZ’s largest lender, ANZ, took over $2bn out of Agri during this time, whilst pumping $32bn into housing. But the other banks were little different.
Even Heartland, an earlier upstart in Agri lending, has clearly moved to focus their growth on home lending – their Agri lending growth has been flat, but their home lending growth has leaped ahead a staggering 28% compounded growth per year.
Looking at the small bank players (“other”), they have collectively reduced (or chosen not to participate) in Agri lending and have instead gone large on the home loan sector.
This, along with Kiwibanks' similar home loan growth, speaks volumes as to how new and growing lenders view the currently regulatory frameworks and market settings when planning their growth.
Given there is a current Government focus on both banking and how we kick start NZ with further export growth, we need to have an honest discussion how our capital allocation drivers are set. This is at both Bank and RBNZ level.
While discussion on margins and bank profits dominate the headlines, bank structural issues that encourage lending to housing at the expense of the productive sectors are not being canvassed enough (see our recent submission for the issues and solutions as we see them).
These structural issues also make lending to Agri (& Business) more expensive (the margins are almost double in Agri on average and in some cases can be higher), even though Agri lending losses are actually very low. This is a massive fiscal drag on the NZ productive sectors.
This is self-perpetuating as well - meaning that the majority of new savings, deposits or external wholesale capital that is raised by the main banks continues to feed into the housing sector reinforcing this as an investment class for new investors – and at the same time starving the sectors of capital that are more likely to grow NZ’s economy.
These are the real questions that need to be asked at the Committee hearings.
If we do nothing new, or simply seek to increase competitiveness in the home loan market, the majority of NZ’s future capital will continue to flow into the housing sector.
Does NZ want a future that has even higher house prices, or do we want an advancing productive and business sectors that have the capital enabled confidence to continue to develop new product offerings, invest along the supply chain, incorporate new technology, develop away from marginal farm systems, bring in the next generation of talent and ultimately invigorate NZ?
There are 370,000 New Zealanders employed in the food and fibre sectors of NZ.
The sector makes up 82% of all our merchandise exports - almost $60bn in export receipts.
The sector has a greater share of our self-employed businesses than any other sector.
Time for a rethink.
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