Dairy fallout 'only just begun' for NZ banks

Lengthy negotiations are set to take place between banks and dairy farmers. Photo / Christine Cornege.

Fallout from the dairy price slump is only just beginning for New Zealand banks, say banking experts.

This country's total dairy lending had swelled to $37.9 billion by the end of June 2015, up from $29.9 billion at the same point in 2009, according to Reserve Bank figures.

Massey University's David Tripe said Fonterra's latest farmgate milk price forecast of $3.90 per kg of milk solids, down from a previous forecast of $4.15, wouldn't make a huge difference to farmers.

"At $4.15, people were already in trouble," he said. "This just slightly increases the extent of the trouble."

Tripe said lengthy negotiations would take place between banks and dairy borrowers, but lenders would try hard to avoid forced sales of distressed farms, as that process could end up being "quite messy".

"It's really a matter of managing the process ... this process has barely begun, " he said.

Dairy land prices had held steady so far, Tripe added, but a fall in land values "would cause a bit more of a problem".

Ross Verry, general manager of agri at ANZ, New Zealand's largest rural lender, said that while the latest cut to Fonterra's forecast wasn't a surprise, it would add to the financial pressure facing many farms.

The bank had already seen a lift in the number of stressed rural customers, Verry said.

"There will definitely be some businesses that don't survive."

However, Verry said many dairy operators were making good progress in reducing costs and increasing efficiencies.

A Westpac spokesman said the bank was well-positioned to work with its rural customers through the dairy cycle.