PRIME MINISTER
FOR PRESS 22 OCTOBER 1978
ELECTORATE TALK
shortly, the Primary Industry Bank of Australia will begin
processing its first applications from farmers for long term
loans. The establishment of the bank fulfills a pledge by the Government
to cater for the special credit needs of rural Australia.
Access to long term capital on suitable terms had become a
serious problem for the family farm. With the commercial market
unable to meet this need a new and unique insitituion was
required. While the demand for credit for capital expenditure and working
capital has grown significantly over recent years, many producers
because of depressed markets, adverse seasons or possibly both
experienced great difficulty in increasing their earnings to the
stage where they can either finance investment from their income
or prove themselves sound borrowers.
Denied access to long term finance, farmers often had to postpone
vital investment decisions essential to the long term viability
of their properties. They were also less equipped to ride out
those recurring periods of low market returns.
The Government realised that to provide farmers with long term
loans at suitable terms a special institution was required. The
Primary Industry Bank is the result of a long period of research
and negotiation. It combines both government and private funds
to lengthen the term of loans and reduce the interest rate.
The Board of the Bank brings together people with wide experience
in financial and agricultural policy fields and in farming itself.
The two farmer representatives on the Board will make sure that
the interests of farmers are heard.
As announced by the Minister for Primary Industry and the Treasurer,
the new Bank will be making loans available to farmers and I
should also include fishermen and foresters for periods of
eight to thirty years at an interest rate of only 10.5% for loans
under $ 100,000. A rate of 12.5% will be charged on loans above
$ 100,000. The loans will be on terms and conditions considerably
more favourable to the borrower than normally available from
commercial sources. / 2
Primary producers will now be able to finance farm investments
on a loan term more appropriate to the expected life of the
investment. It is significant that longer term loans reduce the annual amount
farmers must put aside each year for debt servicing.
For example, the annual payment of principal and interest on
a $ 30,000 loan at 10.5% over eight years is $ 5,726. But over
years the annual payment is only $ 3,645, a reduction of
just over $ 2,000 a year.
The Bank will not only provide longer term funds for the rural
community but will be the means of replenishing supplies of
rural credit available form non-government sources.
Over the past ten years there has been an enormous increase in
government funding of the rural sector debt.
Currently, some $ 1,000 m. or 35% of rural indebtedness to
institutional lenders is covered by funds directly advanced by
the Commonwealth Government. This represents an increase in
excess of 60% in government lending since 1970, during a period
when a number of institutions such as pastoral houses,
insurance companies and the trustee houses have withdrawn
loan funds from the rural sector.
The Government strongly believes in providing the opportunity
for farmers to obtain their credit needs on conditions of
repayment which enable them to plan long term investment
programmes. The Primary Industry Bank will provide this facility and by
using funds raised commercially in its lending operations the
Bank could well boost the aggregate flow of credit to the rural
sector. I believe that, through the operations of the Bank, the family
farm will be able to look to the future with great confidence.