PROPERTY valuers, insolvency companies and bankers' loan foreclosure tactics will come under the microscope in a special inquiry into how farms and other businesses are being forced to sell up because of a collapse in land valuations.
A joint parliamentary committee is calling for witnesses and submissions as it begins investigations into banks for defaulting customer loans, including borrowers who had never missed their monthly repayments.
Land and business devaluations since the global financial crisis (GFC) and during the recent drought and cattle market slump have left borrowers with reduced equity in their properties and a higher loan-to-business value ratios.
In certain cases banks and other lenders have used security revaluations to impair the loans, engineering defaults to force property sales regardless of depressed market conditions or drought.
Farm sector critics of the banking sector's strategies say forced defaults and repossessions have been more common than many realise and are often instigated to suit a hidden corporate agenda.
"And it's not just the equity devaluation issue leaving borrowers high and dry these days," said Unhappy Banking founder and consumer advocate Geoff Shannon.
“What they've been doing is a national shame”
"Quite a few farmers now get to the end of a two- or three-year loan term and find the bank has decided it won't roll their loan into a new term, as promised. They're out.
"The banking industry's treating our agricultural and commercial business borrowers as if they've got the same risk profile as a sub-prime mortgage in the US.
"What they've been doing is a national shame."
The federal parliament's references committee on corporations and financial services last week continued to apply political pressure on the banking sector, announcing it would also look at the extent to which borrowers get opportunities to rectify any genuine default event, and the time typically allowed for them to do so.
Part of the inquiry will focus on how property valuers have been involved in any constructive default processes, and what efforts insolvency practitioners make to recover fair value for property at the centre of a loan foreclosures.
Assistant Treasurer Josh Frydenberg said the inquiry was seeking written submissions before July 24.
Public hearings are expected in September or October, with the findings to be reported to parliament by next March.
The recent financial system inquiry chaired by David Murray supported the government's moves to extend protection against unfair contracts to small businesses calling for the banking industry to develop standards on using non-monetary default covenants in loan contracts.
Last last year, under pressure for evicting farmers whose land value fell after being hit by drought, ANZ Banking Group promise it would freeze foreclosures in drought areas.
Nationals Senator and parliamentary joint committee representative, John Williams, believed drought was a common factor in what appeared to be highly unreasonable farm foreclosure moves, but many town and city businesses were also victims of similar bank tactics to prune their debt exposure in certain markets, particularly since the GFC.
Among those preparing a submission is former Queensland bush cabin business operator Danielle Schaumburg. Mrs Schaumburg's family spent six years battling their bank's attempts to foreclose on their business after a 2008 revaluation of their Sunshine Coast hinterland property wiped almost $1 million from its previous $4.1m worth.
"We were repaying $20,000 a month and never once missed a payment, but were under constant threat of losing our business, our home, everything, because after the GFC the bank decided it wanted us and 1100 other customers off its books," Mrs Schaumburg said.
"We couldn't even build a relationship with our loan manager because the bank was constantly replacing them.
"We'd dealt with 13 different people by the time we eventually sold the business early this year and walked away from the whole ordeal."
She fully understood the pain some farmers were going through after finding themselves in the same sort of predicament.
"You've just got to realise you are not alone and you haven't done anything wrong," she said.
"The bank wants you to think you've failed as a business operator, but I've talked to so many farmers from Western Australia to Victoria, South Australia and North Queensland to know this is not an isolated problem.
"Banks have a lot of power. They should be forced to re-evaluate they way they treat customers."
Looking at the macro picture
The federal parliamentary inquiry into loan foreclosures and related activities will hopefully highlight the pressure agricultural borrowers face, but it also needs to acknowledge macro reasons behind the industry problem, Mr Shannon said.
He insisted Australian banking industry management was now obsessed with "de-risking and book cleansing" its loan portfolios, partly because lenders don't want to divert too much shareholder profit into building the capital reserves required by law as insurance buffers against commercial and agricultural borrowings.
Banking sector requirements since the global financial crisis have increased the amount banks need to hold in capital adequacy reserves against their loans.
According to Mr Shannon, business banking has borne the brunt of much of that cost.
Lenders are now gun-shy about loans in these riskier environments and are using the new regulations as an excuse to cull existing lower priority loan arrangements or avoid offering new lending deals.
"Australia's farming loan book is deemed to be complicated and expensive - it's not as neat and pretty as retail lending," he said.
"But in fact we're often talking about successful farmers who may have been on their land for generations and now they've just been caught out by this convenient banking industry excuse called 'responsible lending'."