Farmers fear that tighter rules around bad debts might lead to more hard times in the rural sector, MPs were told today.
Federated Farmers appeared before an inquiry set up by Labour, the Greens and Progressive parties to look at the interest rates charged by banks.
Federated Farmers economics spokesman Phil York said that the overdraft interest rates charged to farmers had fallen from 11.18 percent to 8.50 percent from last December to May.
This represented a cut of 2.86 percentage points, whereas the Official Cash Rate OCR had fallen by 4 percentage points.
It appeared that cuts in wholesale interest rates had been passed on, but that the OCR cuts had not passed through to wholesale rates.
Agricultural debt stood at $49 billion in June 2009, which meant even a 1 percentage point change in interest rates would be worth $460 million dollars to farmers.
Banks had told farmers they would continue lending to them during times of financial stress.
"However those farmers that are heavily indebted and likely be making on-going losses will inevitably come under closer scrutiny," Mr York said.
"Some might have to make some more significant changes to their businesses and a few might have to exit farming."
Another concern was proposals by the Reserve Bank to force banks to more aggressively enforce international financial standards reporting on risk.
There had already been an upswing in the proportion of impaired and past-due assets recorded by banks.
Banks had been consulted by the Reserve Bank on rural exposures.
Federated Farmers supported a strengthened financial system, but was concerned "aggressive implementation of the proposed changes could be unduly harmful to the farming community as the changes could increase the costs of rural lending and force banks to tighten credit conditions".
The Reserve Bank had been asked to delay implementation to allow banks to adjust in an "orderly manner" and reduce the impact on farming.
The inquiry was launched after government MPs on Parliament's finance select committee voted against an official inquiry.
The opposition MPs were concerned that changes in the Official Cash Rate (OCR) were not being passed on to customers.