Loan-swap warning

Stuart Smith
Stuart Smith

Loan swaps have cost grapegrowers and farmers a lot of money, says Marlborough grapegrower and former New Zealand Winegrowers chairman Stuart Smith.

He has talked to grapegrowers, sheep and beef, dairy and cropping farmers from Marlborough and elsewhere who paid significant "break" fees to get out of loan swap agreements with banks.

People should stay away from deals they did not understand, he said.

"This is not something you lean up at the bar and talk about, which makes it hard to help."

He disputed the Federated Farmers view that loan swaps concerned only banks and their clients. Banks in Britain had been forced to sell more than $1 billion of assets to compensate farmer clients for similar loan swap losses, he said.

The Commerce Commission had been asked to investigate and Mr Smith hoped that might prompt changes to bank regulations and clarify liability. Banks should at least be censured for promoting packages that benefited them without recommending that customers get independent advice, he said.

He had raised the loan swaps problem with Primary Industry Minister Nathan Guy, who had "kept his opinions to himself".

Farmers bought the swaps as a kind of insurance against rises in interest rates but, when interest rates fell, they had the effect of locking them into interest rates in some cases more than 10 per cent on their loans.

Blenheim accountant Greg King, of Winstanley Kerridge, said banks pushed loan swaps when interest rates were at a peak.

Several grapegrowers had escaped from swaps by paying expensive break fees. Others had ridden them out and a small number had done well.

Loan swaps were similar to fixed mortgage interest rates except the bank added a margin that could be varied, he said. "The margin rate goes up so the effective rate of interest goes up, which is where a lot of people got caught."

An accountant with TvA Lock Ltd in Blenheim said banks sold loan swaps to farmers as no different from fixed interest rates.

Bankers and their customers who had not understood the deals later discovered part of their rates had been increased.

"Rather than an interest rate of, for example 7 per cent, some have been paying 9 per cent because of the way swaps have worked," he said.

Labour Party primary industries spokesman Damien O'Connor has asked the primary industries select committee to investigate the activities of some trading banks during 2007-09.

He claims the banks had encouraged farmers to sign fixed-rate swap loans that allowed people to manage their interest rate risk. Those who signed sometimes found themselves locked into high interest rates and unable to cope financially.

"The agriculture sector has a large debt load and a number of farmers have been forced to walk from their farms," Mr O'Connor said.

Have you been involved in a loan swap?  Email us your experiences or call Penny Wardle on 03 520 8935 - your comments will remain anonymous. 


The Marlborough Express