NATIONAL Australia Bank (NAB) customers can now offset their Farm Management Deposit (FMD) with the bank to reduce the figure of their agribusiness borrowings on which interest is payable.
Speaking at a function in Wagga Wagga last night, NAB CEO, Andrew Thorburn, said the move had come about in response to the drought roundtable held earlier this month in Canberra, which called for prompt action from banks to alleviate financial stress caused by drought.
“FMDs play an important part in supporting farmers to manage and grow through fluctuating commodity prices and variable seasonal conditions,” Mr Thorburn said.
“We are writing to all our customers holding an FMD to advise them of this, and encourage them to contact us to let us know which loan to offset the deposit against.”
FMDs allow farmers to remove money from their taxable income during high-income years and reallocate it their income in a year when earnings are low.
Mr Thorburn said NAB also supported FMDs to be allowed as security for lending.
“Whilst this has some challenges, including legislative change, it would give farmers access to additional security as capital to lend against.”
Mr Thorburn also said NAB agribusiness customers who had fallen behind on their loan repayments as a result of drought would not be penalised with a higher interest rate.
“This matter came up in a recent Royal Commission case, and we have decided that change needs to occur.”
In 2016, federal legislation was passed to allow farmers to use FMDs to offset their loan.
Federal Minister for Agriculture, David Littleproud, said NAB had so far been the only major bank to allow its customers to benefit from it.
“This is fantastic news for Aussie farmers. One in three farmers banks with NAB so this change has the potential to help a lot of families,” Mr Littleproud said.
“This is an investment in agriculture’s future and farmers can now vote with their wallets. I hope other Aussie banks follow NAB’s lead and get on board.”
Mr Littleproud hit out at the foreign-owned Rabobank, which he said had “turned up its nose at Aussie farmers” by ruling out an FMD offset product.
“You have to ask how serious that bank is about agriculture in Australia,” he said.
“It’s fantastic an Aussie owned bank has shown a social conscience and led from the front.
“If you’re a farmer whose bank doesn’t offer an FMD offset, you can tell them to bugger off because there are banks now which do.
“I also congratulate NAB on removing penalty interest when a farmer defaults on a payment during drought.”
Mr Littleproud said the banking sector needed to reassess the deployment of penalty interest rates as a whole.
“It’s really a kick in the guts when someone’s down, which isn’t the Australian way.”
NAB’s move follows months of strong words of ministerial advocacy, and lobbying of banks by farmer organisations.
Prior to the NAB move, Rural Bank was the only bank in Australia which offered farmers the chance to use their FMD as an offset against their loan, following the 2016 legislation changes which doubled the amount a farmer could hold in a FMD to $800,000.
Source: NAB, Minister for Agriculture and Water Resources