A number of factors are behind the change in bank lending practices in the agribusiness sector, including the broader consequences of the Banking Royal Commission, such as a focus on loan interest serviceability rather than asset coverage, as well as APRA-driven changes to banks capital adequacy requirements, especially with regard to impaired loans. These have combined with the perceived reputational risk around enforcement of agricultural loans and the lack of workable solutions to “exit” more challenging loans and, more recently, with the tightening in the broader credit market due to COVID-19.
The reduced bank appetite for agribusiness lending has enabled us to build our Agribusiness investment strategy over the last two years, with a focus on lending against real assets that are used for food production and delivery supply chains. Agricultural supply chains are the pathways that deliver our food and fibre, from farm gate through agricultural infrastructure through to the consumer. The current pandemic has increased the focus on security of food supply and the provision of non-bank credit has been critical to support the expansion and sustained operations of key infrastructure. Banks need certainty of short term cashflow to provide credit whereas we place more emphasis on our loan being protected by significant underlying asset values.