Controversy over how Kiwi lenders sold a complicated financial product to farmers
has resurfaced during an extremely uncomfortable time for the banking sector.

It comes as banking behaviour hits the spotlight and will remain in it as long as Australia's royal commission of inquiry keeps unearthing scandals in that country's financial services industry.

On this side of the Tasman, banks have been rushing to appease our regulators after being told to front up and prove they are not ripping off customers.

Local lenders will be hoping that information provided to the Financial Markets Authority and Reserve Bank over the last fortnight is enough to avoid a formal probe here.

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Which is why it's such an awkward moment for a High Court case over interest rate swaps to come to light.

This month it was revealed that Dargaville woman Renie Gibson is suing Westpac after she lost her dairy farm during the global financial crisis.

The bank denies her claims but a fortnight ago failed to have the case tossed out for being filed "out of time".

The legal action remains live and Gibson, who is now a truck driver, alleges Westpac misled her into financing the purchase of the farm with an interest swap agreement last decade.

Interest rate swaps are complicated financial products that allow borrowers to manage the interest rate exposure on loans.

They were marketed by some New Zealand banks from 2005 to 2009 and when they went sour sparked scores of complaints to the Commerce Commission, particularly from farmers.

Australia's banking inquiry has unearthed a number of scandals across the Tasman. Photo / NZME
Australia's banking inquiry has unearthed a number of scandals across the Tasman. Photo / NZME

After a probe - and the commission saying it intended to file legal action - ANZ, Westpac and ASB in 2015 stumped up more than $24 million in settlements paid to rural customers or their communities.

ANZ paid the vast amount of that sum and a judge declared that the bank engaged in conduct that was misleading to some customers by understating some of the risks or overstating some of the benefits of interest rate swaps.

Westpac and ASB made out-of-court admissions that some of their conduct around the marketing of these swaps breached the Fair the Trading Act.

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A handful of farmers - including Gibson - did not take the settlement offers and have pursued banks themselves through the courts.

While swaps do not appear to have been such a burning issue in rural Australia, concerns over how banks treated farmers have been bubbling away for years across the Tasman amid foreclosures following the global financial crisis.

That conduct has not yet been traversed by the banking inquiry but is expected to come into focus during further hearings this year.

It is understood that at least one top Kiwi banking executive is sweating that part of the probe and potential parallels to behaviour in this country.

Westpac's chief executive David McLean, on the other hand, told the Herald earlier this month that he wasn't worried.

"In New Zealand we've had a really steep downturn in dairy yet we've had no real spike at all in complaints and the number of farmers where there's been a receivership or something has been very very small...that to me is a sign that New Zealand banks generally - and certainly we're very proud of our own record - have handled things responsibly," McLean said.

"If they'd been any bad treatment of farmers in this dairy downturn, it would have shown up in the statistics, you would have heard about it, the Banking Ombudsman would have heard about it...I'm hoping this will be a good example of where New Zealand has been different," he said.

That may be so, but the swaps saga showed that local banks are not above reproach and I'd wager some farmers caught up in it will be hoping New Zealand follows Australia's lead and launches its own inquiry into banking conduct.