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Wednesday, 27 June 2018
Page: 4196


Senator O'SULLIVAN (Queensland) (17:49): Well, indeed, might I congratulate Senator Anning on choosing the subject matter for this MPI and endorse the fact that it is a matter of public importance. I'd like to attach myself to his remarks in his contribution. It's well known that I was involved in agitating, along with yourself, Mr Acting Deputy President Williams, might I say, and with others in the other place, for a commission of inquiry, which resulted in this current royal commission. I'm inclined to agree that the terms of reference could have been broader in some categories. Of course, my motive all the way through—and I know your motive, Mr Acting Deputy President—had a focus on the importance of this inquiry for people in the rural sector.

I know that you've dealt with, quite literally, hundreds of representations over time. I, myself, in the four years that I've been here, have at the very least been engaged with rural producers who found themselves in difficulty. That's been in the many dozens. I really do want to place on the record your efforts, Mr Acting Deputy President, because I know that there are quite literally dozens and dozens of families who survived their conflict with the banks due to your representations to the banking sector. In fact, I suspect that outside the Prime Minister and perhaps the finance minister and the Treasurer, you are the only one who's got all the CEOs of the banks on speed dial! And I know from my experience that you didn't hesitate to push the button. That, in a sense, lent confidence to people in the bush—they knew that they had a champion in this place with respect to the behaviour of the banks.

I want to focus just on two parts. I've said it in speeches in this place before, and outside of this place, that one of the most unconscionable efforts of the banks had to do with the establishment of securities. It was the term for it, as you know. When a loan is made, two of the critical considerations for a lender are to do with serviceability—clearly, that's the ability of the borrower to meet the terms and requirements of their loan. And the second is a matter of security. And there's a thing called an LVR: the loan-to-value ratio. Whilst there are always exceptions to the rule, in the rural sector that floats somewhere between 60 per cent and 75 per cent, depending on the terms of the application. What that means is that a financial institution will lend the borrower up to 60 per cent, or between 60 per cent and 75 per cent, of the total value of the purchase, with the balance being the equity of the investor—the equity of the farmer.

It's a well-known fact to anyone who studies trends in rural assets that the fortunes of the borrower rest, first of all, with the weather. Second is the market itself—the implications of the market itself. And thirdly, of course, is the value of the property. There is a direct relationship. If you overlay the graphs of these things over 30 years, it is absolutely uncanny how these trends occur. Bad weather conditions are not favourable to the farmer so there are bad market conditions as a result, with the saturation of commodities onto the market. Of course that then puts downward pressure on the value of the asset.

This LVR, the loan-to-value ratio part of it, is one of the covenants. There are many covenants in a loan contract between the lender and the borrower, but this is one of the critical covenants. If it's breached—that is to say that if at any given time the value of the property is such that the equity, or the share of equity, of the value of the property is less than that in the contract—it gives the banks carte blanche to be able to take control of the asset.

Unlike most of us in this place, and most who live in the heavily populated areas of the country, the unique thing about rural producers is that everything's on the line. It's not just their business; it's their house, where they live. Every single asset that they own is attached, in most instances, to the security of the loan on their property. Unlike businesses, who might find themselves in trouble where the bank might foreclose on a business, where they've got opportunities—and many, many hundreds of thousands of businesspeople do this—they separate the assets so that, in the event of a failure, they might at least preserve the family home and they might at least preserve the tools of their trade. They might lose the business and, in circumstances where the contracts are not met, that's not an unfair or an unreasonable thing to occur. But they're unlikely at any time—certainly not during a drought, if you're a borrower in the metropolitan areas—to have the value of their business asset, unless it's directly indexed into the supplying goods or services into the rural sector, impact on their home or assets that are isolated from the security arrangements with the bank. The banks have used this on frequent occasions, and recent evidence before the commission shows that they used this as a trigger to take over so many properties.

The second part—and Senator Anning was right to raise it—is what happens when the banks move on these properties. The banks know full well that, with a break in the season, there will come a lift in commodity prices and a restoration of the value of the property, but they're not interested in waiting for that. At the worst possible time in the farmer's or the pastoralist's life, in circumstances beyond their control—there's very little they can do to mitigate their circumstances from a long and cruel drought—when they need their banks the most, it's their experience that they receive the least amount of support.

Mr Acting Deputy President Williams, I know that you've had a number of cases presented to you around the appointment of receivers and administrators. I know there was one famous case that came to you where the receivers moved stock off the property. There was some contestability around the transporting of the stock, and it was $16,000 or $17,000 when it should have been $6,000 or $7,000. These people have no idea. They undo their tie, take their crisp white shirt and fluff the collar and then go out into the west to take on a role to manage a complex circumstance of properties that are in drought. They honestly would not know the difference between a mulga bush and a Christmas tree, and yet they're sent in to try and keep thousands of stock alive. They buy in a bit of cheap labour along the way. But what happens—and this is the insidious aspect of what happens—is: I promise you, to an appointment, that they will stay in the appointment and not resolve the matter until they have carved out every cent of equity left by that farming family. Sometimes it takes 12 or 18 months to administer the receiving of the property, and they will just go until there's absolutely nothing left. So, not only have these people lost everything; they've also lost the opportunity to make a dignified transition off their farms to some other form of life.

The banks are on notice. They know they're on notice. They need to think very, very carefully. Some of the ways that they will be able to restore public confidence are: to look at some of the features of these loans; to look at some of the features around these weather cycles; and to have a look at what periods these properties are in good shape, in the sense that people can then make prudential provisions and arrangements with their banks in order to be ready to insulate themselves from the inevitable dry period in this country. I could quote from a dozen Lawson and Paterson poems about the circumstances on the land. The banks can't pretend that they're ignorant to these cycles and the challenges of these borrowers. Mr Acting Deputy President Williams, I know that you are looking at this very closely. I am looking at this very closely. We need, as a government and as a parliament, to support this inquiry, if it requires more time and more resources, until it does this job very, very thoroughly.