Jan 7th, 2009

Farmers accuse banks of 'financial gouging' on interest surcharge

The President of the Irish Creamery Milk Suppliers Association (ICMSA), Jackie Cahill, has accused Irish banks of operating a system of virtual extortion on farm loans. He said that Irish farmers are being surcharged by banks by up to €150 million on an annual basis and that overdraft rates in Ireland are more than double the UK rates. Mr Cahill said that there was no logical reason why the overdraft rates presently available to farmers in Ireland range from 9.1 per cent to 10.5 per cent whereas overdraft rates of less than 5 per cent are readily available in the UK.

“The structure of long-term lending to farmers and the security basis of those loans has changed significantly in recent times with all long-term lending now being secured by legal mortgage. In fact, the banks now hold actual mortgages on a huge proportion of Ireland’s farmland and so incur practically no risk. In Britain, longer-term money can be got with a margin of 2 per cent above the Bank of England base rate given a term loan interest rate of 4.5 per cent. Three to five year money in Ireland is at least 3 per cent higher. ICMSA is now publicly asking the banks and the Financial Regulator to explain the reason behind this. Any difference cannot be justified by the gap between the European Central Bank and the Bank of England base rates because this gap is currently only a half per cent”, pointed out the ICMSA President.

Mr Cahill said that currently farmers have bank borrowings of €5.4 billion with over one billion being added in the last two years. This is the highest level of farmer indebtedness ever and ICMSA estimates that every one per cent interest rate costs farmers €54 million.

“This is an area which needs a addressing as a matter of urgency given the unprecedented pressure on farming and the agri-food business generally due the strength of the Euro against sterling. Here we have a perfect example of the kind of financial gouging that we all fear will be the recourse as Irish banks seek to painlessly recapitalise themselves on the backs of the productive sector. I have written to the Financial Regulator requesting that he would investigate the excessive margins being charged by banks in Ireland in comparison to UK margins and that he should direct the banks to reduce interest rates that they charge. The Regulator should look at the way banks are increasingly applying very high rates to farmers who are not in a position to bargain. One way of effectively of ending this practice would be for the Financial Regulator to do his job and publish the results of his investigation so that the farming community at least knows who to avoid”, concluded Mr Cahill

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