RBNZ may tighten capital requirements on farm lending
The Reserve Bank of New Zealand will announce new capital requirements for farm lending, with the intention of having tighter conditions in place by the end of the second quarter of 2011, Dow Jones reports. The risk of a concentration in loans to the rural sector has been a theme of RBNZ's commentaries over recent years.Sean Keane, author of a daily market commentary for Credit Suisse Securities, points out that farmers, and indirectly their banks, are enjoying the gains in dairy prices associated with world food price inflation."It is one of the ironies of the current economic cycle that the massive soft commodity gains made by Kiwi farmers have often ended up back with the banks in the form of debt repayment," Keane wrote. "The normal multiplier of economic activity that should have accompanied this commodity price increase has not occurred for this very reason. Instead of reinvesting in their business, consuming their profits or looking to expand their activities, farmers have been repaying debt and deleveraging."