Federated Farmers has joined the burgeoning bank-bashing queue, calling for overdraft interest rates to be cut to better reflect falling interest rates.
Describing banks as "hiding behind a facade" of mortgage rate cuts, Federated Farmers claims banks are "profiteering", "price gouging" and otherwise putting the "brakes" on assisting an export-led economic recovery.
Some rural sources believe Federated Farmers is planning to lay a complaint against banks with the Commerce Commission, encouraged by frustrated farmers who see banks' borrowing costs dropping but bank margins increasing - at their expense.
There are increasing calls from a variety of borrowers - rural, business and homeowners - that the banking sector is not passing on the benefits of the lower interest-driving official cash rate which has been slashed 3.5% since July by the Reserve Bank to 5%.
Rural bank overdrafts are at more than 10% and small business loans up to 16%.
The OCR was cut by the Reserve Bank by an unprecedented 1.5% in December, in order to boost spending amid the onset of recession, with widespread expectation the present 5% OCR could be cut again next week by a full 100 basis points - 1%.
Federated Farmers economics and commerce spokesman Philip York said a January survey of farmers revealed the average overdraft rate charged farmers was 10.4%, or more than twice the present OCR, in order to "build up fat margins" of banks.
"That is a massive margin banks have, and continue to build, at the expense of the productive export sector. The banks are literally farming the farmers to keep their profits high," Mr York said in a statement yesterday.
Farm businesses had only received about half of the total 1.5% OCR cut to date, he said.
"By cutting overdraft interest rates by only about half that cut from the OCR last December, there appears to be a degree of profiteering," Mr York said.
The banks were "price-gouging farmers" who generated most of New Zealand's wealth, however, he noted the problem impacted negatively on all small to medium-sized business as well.
"This is money being sucked out of the provincial economy," Mr York said.
The Fed's Otago provincial president, Richard Burdon, said the overdraft costs were a "huge issue" for most farmers, who had invested in a lot of technology during the past five years.
Depending on the farming type, some were reduced to having "one or two payout" cheques during the year, and at a time of reduced prices in some areas.
"There is now a lot of pressure coming on farmers to be able to get through the rest of the year," Mr Burdon said when contacted yesterday.
Earlier this month, the Otago Daily Times highlighted the lending plight of small to medium-sized businesses, which employ the majority of New Zealanders.
They appear to be paying between 14% to 16% for money from their banks, even as floating mortgages continue to fall to about 8.75% or less.
Berl director Kel Sanderson said earlier this month there was usually a premium of between 2.25% and 2.75% for business lending, implying that businesses should be now paying about 11% for their money rather than 14%.
Mortgage interest rates have fallen sharply since late last year when the Reserve Bank began slashing the OCR, however, New Zealand has always had the highest interest rates in the developed world.
While more competitive interest rates are good for first-time buyers or those turning over mortgages, about 80% of all New Zealand mortgages are at a fixed rate and the benefits of low interest rates are slow to flow through, unlike Australia where 80% of mortgages are floating.
In December, Reserve Bank governor Alan Bollard called for all New Zealanders to do their part to reduce inflation and keep interest rates falling as a way of helping the New Zealand economy to recover.
"Banks seem to have interpreted this as meaning their retail, rather than business, customers," Mr York said.
The Government knew it required an export-led recovery but the banks were "dragging the economic chain", he said.
