Lending Intelligence

Lending Risk Assessment - Credit Conditions Score: 45/100

Credit conditions remain constrained at 45/100, unchanged from the previous period, reflecting persistent pressure from the RBA's restrictive monetary stance with the cash rate holding at 3.85% and small business variable rates averaging 8.25%. Farm debt serviceability continues to deteriorate sharply, with the sector's rate of return plummeting to just 1.8% in 2024—a dramatic decline from the previous period's 58/100 profitability score to 36/100. Cotton producers face dual headwinds from elevated borrowing costs and weakening commodity prices (down 3.4% to $510/bale), whilst wheat growers contend with softer pricing (down 2.1% to $342/tonne) despite reasonable seasonal conditions in key producing regions. Victoria presents the highest regional lending risk at 49/100, pressured by dairy sector margin compression and above-average rainfall impacting operations, whilst South Australia shows similar stress levels (45/100) driven by wheat price weakness. Agricultural credit growth is expected to moderate further as debt-to-equity ratios stretch beyond prudential thresholds for leveraged operations, particularly in broadacre cropping enterprises. Recommendation: Intensify monitoring of cotton and wheat portfolios in NSW and SA, implement quarterly debt serviceability reviews for borrowers with debt-to-equity ratios exceeding 40%, and prepare contingency plans for refinancing requests from Victorian dairy operations.