Credit crunch hits farmers’ overdraft rates

A leading high street bank has drawn criticism from farming customers this week after it unexpectedly increased overdraft rates for some customers (see below). Barclays agriculture specialist, Euryn Jones, confirmed the bank had been reviewing pricing in all industry sectors due to the tighter availability of credit in the financial markets.

“As a result some customers have seen rates increase, on average by less than 1%. But it’s by no means everyone. There’s been no change for some and others have seen a decrease. It only affects overdraft rates and there’s been no change to margins on longer-term mortgages or loans.”

But the move highlights the wider issue that the ongoing ‘credit crunch’ means higher-risk customers – i.e. those with less security and ability to service debt – are less desirable to banks and are likely to pay more for finance as the economic turmoil continues.

“Banks still want to lend to agriculture, but they’re no longer prepared to take risks on the assumption that asset values will keep increasing,” Peter Walker of consultants Wilson Wraight, said. “If the security is there and the lending can be properly financed, very little has changed.” Other banks had not followed Barclays’ lead yet, he added.

HSBC’s Pat Tomlinson said individual banks had different costs of capital and were having to reflect that in current pricing. “The time to renegotiate pricing is when lending comes up for renewal and for overdrafts, that’s typically annually,” he said. “For us, it’s business as usual.”

While base rate had fallen to 4.5% and was expected to go further, he urged customers to make sure they understood what borrowing margins were based on. In particular, the LIBOR (London Interbank Offered Rate) rate – the rate at which banks lend unsecured funds to each other – was 1.5-2% more than base rate, he said.

Martin HowlettManagement Matters farmer Martin Howlett was one of those affected by the Barclays rate rise. His overdraft margin over base was increased by 0.5% from 2.25% to 2.75%. “I understand others have seen increases of 1-1.5%. My concern is the impersonal way they did it with an unnamed letter and the fact that it wasn’t discussed at all. It feels like they’re trying to raise money out of their existing customers.”

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