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Thursday, 31 March 1966

Mr McMAHON (Lowe) (Treasurer) - by leave - -In his statement to the House on 8th March on Government policy, the Prime Minister (Mr. Harold Holt) referred to some proposals the Government had under consideration for new and extended farm loan facilities designed to provide primary producers with greater access to medium and long-term finance through the banking system for farm development purposes, including measures for drought recovery and mitigation of future droughts. The proposals comprised the establishment of a separate Rural Division within the Commonwealth Development Bank, and the establishment by the trading banks of farm loan funds which would be separate from the existing term loan arrangement and for which a sum of $50 million would be available. The Prime Minister also indicated that the Government was exploring an insurance scheme to cover loans made from the banks' farm loan funds. After further consideration we have decided not to proceed with the proposal to establish a separate Rural Division within the Commonwealth Development Bank.

On this matter we have taken the view that legislative action is not necessary to achieve the Government's objectives so far as the operations of the Commonwealth Development Bank are concerned, and that the needs of the rural industries for development finance from the Commonwealth Development Bank could be served just as effectively if we were to indicate that we wished to see a somewhat larger proportion of the Development Bank's funds applied to rural loans. We have accordingly adopted this course and I have informed the Commonwealth Banking Corporation Board, which controls the Commonwealth Development Bank, of the Government's wishes.

With regard to our proposals for the establishment of farm loan funds by the trading banks, the Prime Minister, the Minister for Trade and Industry (Mr. McEwen) and I discussed the proposals on 17th March with the general managers of the major trading banks and the Governor of the Reserve Bank. The general managers expressed themselves as being generally in full agreement with our proposals, and it was arranged that further discussions on details would be held between the Reserve Bank and the trading banks. I am now pleased to report to the House that these further discussions have taken place and have resulted in the formulation of agreed arrangements. The arrangements are entirely in keeping with the Government's objectives, and the trading banks will proceed immediately to take the necessary action to give effect to them.

A Farm Development Loan Fund will be set up initially by the transfer of $50 million from the trading banks' resources to accounts to be kept by the trading banks with the Reserve Bank and to be called Farm Development Loan Fund accounts. Approximately two thirds of the amount of $50 million will come from the banks' statutory reserve deposits with the Reserve Bank and one third from their other assets. At the same time, an amount equivalent to 0.4 per cent, of banks' deposits - approximately $21 million - will be transferred to the existing term loan fund accounts on a similar basis. As in the past, a proportion of the term loan funds will also be applied to rural lending. The Governor of the Reserve Bank will shortly be announcing the reduction in the statutory reserve deposit ratio necessary to make these transfers.

Loans from the Farm Development Loan Fund will be made by the trading banks to rural producers, particularly smaller producers. Those whose main activity is outside rural production, and public companies, will not generally be eligible. Loans so made will be designed to supplement those available from the trading banks on overdraft and from term loan funds, and will represent a net addition .to bank lending to the rural sector.

They will be at fixed term for a period related to the nature of the particular project being financed. It is expected that the periods will range up to 15 years, with longer periods possible in special cases. The loans will be subject to fixed periodical repayments. Conditions for servicing the loans will be related to circumstances in. the ry. ral sector and to the requirements of farm programmes for which they are made. Where the project financed takes some time to yield increased income the first repayment may be delayed appropriately.

Loans from the Farm Development Loan Fund will be directed predominantly to developmental purposes which will raise productivity in rural industries. These purposes will include development projects for the mitigation of future droughts or to promote recovery from the present drought. Purchases of property may be financed if the purchase will result in a substantial increase in productive efficiency. It will, of course, be for the trading banks themselves to determine whether to make loans in particular cases. However, the trading banks have indicated that in examining applications for these loans they will stand prepared in appropriate cases to relax normal security standards. They will look for good prospects for the success of the venture and capability and integrity in the borrower. Generally in the administration of the Farm Development Loan Fund they will also give special consideration to the needs of creditworthy younger men with appropriate experience who have been unable to build up adequate resources.

With regard to rates of interest, loans from the Farm Development Loan Fund will be made within the range of preferential overdraft rates normally applicable to rural customers, with the majority of loans being towards the lower end of this range. I should perhaps emphasise that the Farm Development Loan Fund will constitute accounts of the trading banks whose administration will be a matter for the trading banks, lt follows that applications by primary producers for loans from the Farm Development Loan Fund should be made direct to the trading banks.

With regard to the question of an insurance scheme to cover loans made from the Farm Development Loan Fund, this is a matter involving complex technical problems and the banks have proposed that, for the time being at least, they would prefer to undertake the type of lending envisaged by the Government without looking for insurance or guarantee cover from the Government. The purpose of the proposal was to ease the risk which banks might feel would be involved, and therefore the Government is disposed to defer consideration of the scheme for the time being.

The establishment of the Farm Development Loan Fund, as a source of finance for primary producers additional to the facilities available on an ordinary overdraft basis and through the term loan funds, marks a new and continuing policy on credit for the rural sector. The new arrangements will result in the provision of additional facilities exclusively devoted to the special needs of primary producers for longer term developmental finance and will undoubtedly make an important contribution to the achievement of higher farm productivity. The outcome is a pleasing one to the Government, and I should like to place on record our appreciation of the helpful and co-operative attitude shown by the trading banks in the formulation of the arrangements I have outlined.

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