Banks may be overextended to drought-stricken farmers
Farmers across Australia are preparing themselves to deal with severe drought conditions and so are their bankers. Banks have chased the agribusiness sector in recent years, lending more as rural land values and commodity prices have risen.
The risk the banks face is that the asset-based rural lending they have done in recent years, which has grown by as much as 20 per cent a year, may have outstripped the borrowers' ability to service their loans. The Australian government's exceptional circumstances drought assistance program will be extended to March 2008 for eligible primary producers in 18 declared areas in New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory. In total 38 per cent of agricultural land in Australia is eligible for assistance.