Farm Lending After the Royal Commission with Matt O'Dea

Podcast transcript from Your Farm Business Podcast

What has really changed in farm lending since the Hayne Royal Commission? In this episode of Your Farm Business Podcast, P2PAgri founder Mike Krause hosts Matt O'Dea, owner of O'Dea Farm Finance in the Clare Valley and a former big-four agribusiness banker who spent close to thirty years inside the machine before moving to the other side of it. That combination makes Matt unusually candid about how credit decisions actually get made.

Recommendation 1.114 of the Royal Commission asked banks to use experienced agricultural bankers on distressed farm loans and to offer farm debt mediation early. Since then more than one in three regional branches have closed, credit decisions have shifted to centralised city teams, and total agricultural lending has grown to around $120 billion. Matt explains why compliance is the biggest change of all, how scrutiny scales with your level of debt, why brokers now handle nearly half of all agricultural loans, the fees hiding behind your headline rate, and how to tell which bank will actually stand beside you when the season turns.

A note before we start: everything discussed here is general in nature and is not a recommendation to take any particular action. Farm finance is complex and specific, so talk to your own adviser, broker or banker about your situation.

Thirty Years Inside a Big Four Bank

Mike Krause:

Matt, can you give us a bit of your background and what brought you into rural banking?

Matt O'Dea:

I actually fell into banking in the late 80s, Mike. When I left school I was looking for some money, there was a job going in the bank, I applied for it, and back then things were very different. I was fortunate enough to get a job in a big four bank, which I thought would tide me over for twelve months or maybe two years before I worked out what I wanted to do. I didn't go through university, I was just a seventeen-year-old kid walking in there with no idea, and close on thirty years later I walked out. I had no idea I'd last so long, but the job satisfaction I got out of working in rural and regional Australia was too good to want to leave. Most of those thirty years were on the front line dealing with customers, and my last role was looking after the agricultural division for South Australia and Western Australia for one of the big four. Now I bring that experience into helping farmers through my own finance company.

The Biggest Change Since the Commission: Compliance

Mike Krause:

A lot has happened in the last ten years since the Royal Commission. What are the major changes you've observed in lending to farmers?

Matt O'Dea:

The major change, Mike, has been the focus on compliance internally within the banks. The Royal Commission has enforced that on them, so they can't just sit back and not act on the outcomes. That compliance includes things like anti-money laundering and counter-terrorist financing, all the requirements around knowing your customer, or KYC as it's referred to internally. It's extremely important, and it takes time because of all the identification. Everyone listening has been through some form of that with their bank, and they're not asking for the fun of it, it matters that they know exactly who they're lending to.

The other fundamental difference is the focus on cash flow budgets. Compared with the old days, where a lot of lending was done on the back of a beer coaster, everything is documented now. Perhaps ten, fifteen, twenty years ago, if a farmer had a pastoral house, Elders or Nutrien debt, that wouldn't even appear on the cash flow, the bank just thought of it as being out there somewhere. Now they want to know all of it: what the limits are and what clients are spending their money on. So the internal focus is on knowing who they're lending to and knowing what their customers are spending and where. It's a very big focus in banking now.

Do Banks Actually Read the Cash Flow? It Depends on the Debt

Mike Krause:

Years ago farmers were asked to do cash flows, but the cash flow tended to go in the drawer once the bank had said yes, only to be pulled out a year later at the next review. Has that changed? Are banks actually requiring plan-to-actual cash flows so they can see the finances are managed more tightly?

Matt O'Dea:

It depends on your level of debt, Mike, and I'm being very broad here. If you owe less than a million or a million and a half, the focus on the cash flow perhaps isn't as high as it is for someone who owes ten or twenty million, and maybe nor should it be. I do believe that "put it in the drawer and look at it twelve months later" still applies to a lot of clients, and to a lot of bankers, at the smaller end. As long as they can tick the box to say they have the cash flow, I don't think many bankers are actually analysing those budgets.

But at the mid level, say ten million and up to forty or fifty million, which is a significant sum of debt, there absolutely is a request for actuals against budget, and often a request from their accountant for three-way financials and three-way budgets. So a lot does depend on that debt level.

Land Valuations After the Royal Commission

Mike Krause:

One of the accusations at the Royal Commission was that banks tended to overvalue land. We've since seen land values skyrocket, which suits the banks because they can secure against the land. Has valuation changed much since the Commission?

Matt O'Dea:

The Commission highlighted a few cases where banks may have overvalued clients and then, for want of better words, tried to pull the pin on them. But looking back through the numbers, those cases were very isolated, and even more isolated to one bank in particular, unfortunately for them. The scrutiny on valuations has increased across all banks to the point where they're looking for an updated valuation roughly every three years.

There are still a lot of internal valuations done by banks, but they've introduced their own internal valuation teams that audit the bankers on the valuations they complete. I think we'll continue to see a bigger push toward external, independent, licensed valuations, especially for larger clients. And that's not all negative. Some clients actually want a current valuation so they can run numbers like return on assets, or make a strategic decision to offload a parcel of land that isn't working for them. People sometimes just look at the cost and say they don't want to pay it, but used in the right way a valuation is an effective tool. And when a client is refinancing from one bank to another, in many cases the new bank will cover the cost of the valuation, so there are ways around it.

Branch Closures, Centralised Credit and Lost Local Knowledge

Mike Krause:

With rural branches shutting, there are fewer rural lending staff. Has that made it harder for farmers going through a drought or a downturn to find bankers who understand what they're dealing with? And is that part of why rural finance brokers like you have grown in number?

Matt O'Dea:

With centralisation you've got credit people who don't sit in the same town, or even the same state, in many cases they're interstate. So it can be challenging when you can't just call someone who knows your farm, knows where you are, and has a good grip on where the season's at. We're currently having a great season in South Australia, which is wonderful after the last few years, but a great season can also bring extra cost. If we go back to 2024, that was an absolute shocker for so many. Then in 2025, at least in this state, the yields were okay, so farmers thought they'd do all right, but commodity prices meant a lot of them only broke even. So right now we're flat out doing increases for many clients so they can take advantage of a good crop.

The challenge is that we have a lot of young and inexperienced bankers who haven't seen what happened in the past two years and what that means going forward. With respect to all of them, I'm not having a go at anyone, but in farming you can't just look at the season you've got, you have to look at the history and understand your local area. Centralisation has directly coincided with poorer customer service. The further you get from a client, the harder it is to understand them, service them and know what they're going through.

Where Farmers Should Go Now

Mike Krause:

In the old days the rural bank manager was the biggest mentor in town. Now that's changed. Is there wisdom in going through people with your skills as we look at borrowing, or do farmers have to brush their shoes off and present their case to the capital cities?

Matt O'Dea:

It's a sad day if a farmer has to go to a capital city to present an opportunity, and I'd like to think the industry is mature enough that it doesn't come to that. There are some fantastic bankers in the capital cities who have access to a motor vehicle and should be able to get in, get out and see a client. If I wasn't out on farm shaking hands with my clients face to face, I don't think I'd have half the clients I've got.

I'm not going to just sit here and say go and use a broker, much as I'd love to plug myself, because that's not who I am. But I think you'll see more reliance on external experts to help put things together, whether that's someone like me with broking experience, your accountant, or financial modelling tools like P2PAgri. As experience and expertise dissipate from regional areas, a lot of farming clients are asking, where do I get that from now? So they're looking to external professionals who can fill the gaps the bankers used to fill.

"Management Ability" Is a Credit Criterion

Mike Krause:

It's no small number to buy the neighbour out now, it could be three or four million dollars. Does a banker look on it more favourably if the farmer is on top of their own numbers? Is it up to farmers now to take on more of that business-presentation responsibility?

Matt O'Dea:

One of the key criteria a bank uses is management ability. Now, I'm not saying a farmer has to be all over their interest cover ratio or their debt-to-asset ratio, there are people who tell you to know every number back to front, but the primary job of a farmer is to make money out in the paddock. What they do need is a good, solid understanding of what's happening with their books. A lot of farmers have moved to programs like Xero and other financial software, so you can get real-time data and make decisions reasonably quickly. If you can't articulate your own numbers, or show a credit person that you've got a good grip on your own business, they're less likely to say yes.

Broker Share Has Exploded, and Who Actually Says Yes

Mike Krause:

How have you seen the broker market change?

Matt O'Dea:

When I started just over six years ago, brokers did about one in ten agricultural loans. It's now about four in ten and rapidly approaching five in ten. One bank told me last year that 80% of their new-to-bank business came in the door via a broker. Farmers are clearly reaching out for support, and part of it is interest rates: farmers are more conscious of what they're paying and whether they have the right product structure. I see the old term-debt-versus-overdraft problem in so many cases, clients with 80% of their debt sitting on an expensive overdraft and only 20% on the cheaper term loan, when it should be the other way round.

The fundamental role of a broker is to write the credit paper, and you have to have the skill to write it to appease the credit manager, not your local banker. Your banker doesn't have the authority to sign these things off anymore. So it's about understanding what the credit manager wants to see, and just as importantly what isn't important to them. If you're not portraying to that credit person that you have a good grip on your own business, they're less likely to approve it.

Look Past the Headline Rate

Mike Krause:

Farmers used to be advised to shop their finances around every four or five years, because it's competitive. Is it still worth doing that, or is there more value in a long-term relationship?

Matt O'Dea:

Some people are happy to pay a premium to stay with their existing bank and banker, and being a bit old school, I think that's fantastic. But the challenge I'd put back to them is: what is that premium? Is it $5,000 a year, $10,000, $20,000? Once you put it in dollar terms, it can change the decision. And yes, there is a big difference between banks. They all have different little ways of naming things, whether it's a line fee, a quarterly management fee or an undrawn limit fee. Some banks only talk about their customer margin because they want to take the focus off the actual rate. You think you're paying 7%, but once you add everything else on, it's probably closer to 8%. So it's important to understand what you're really paying.

Unlike a lot of brokers, I don't go out and encourage people to swap banks all the time. If you can get a better, competitive deal from your existing bank, why move? Now, full disclosure: as a finance broker I get paid more if clients change banks, because we get an upfront fee, whereas if they stay we only get a trail commission on their existing loans. So you may come across brokers who are really keen for you to refinance, and there's a reason for that. I'd genuinely love more people to say, no, I like my banker and I want to stay.

Loyalty, the "Bad Bank" and Farm Debt Mediation

Mike Krause:

A lot of us value the relationship because when things get tight, a bank that knows us might stand beside us for a couple of hard years. Is that loyalty still there? Some banks seem to help farmers in difficulty and others treat them more harshly, and it's hard to know which is which.

Matt O'Dea:

This is the uglier side of banking, what many clients call the bad bank. Each bank in Australia has its own version of that division under a different name. The important thing is that most clients who land there get there through seasonal conditions, not mismanagement. The challenge is that some banks' level of agricultural knowledge is not great. I'll give you an example without naming names. One bank's bad bank was based interstate. I got an SOS call from someone who wasn't even a client of mine, a broadacre farmer whose facilities were all set to expire in September. I asked why they'd expire in September, and he didn't know. When I got in touch with the bank, that banker asked me, "When do they sow the crop, and when do they harvest it, in South Australia?" I thought, oh my goodness. That poor farmer had spent all his money getting his crop to grow, with no income coming until harvest at Christmas, and his facilities were expiring at the worst possible time.

Those are the horror stories, and I'm not saying they're all like that, far from it. Many banks work with their clients for years to get them out of the bad bank, and they do a really good job. I've known clients to be in there for four or five years and come out the other end. Hats off to the banks that staff those divisions properly with good people. My concern with farm debt mediation is that it isn't offered early enough. It costs money for a bank to attend mediation, and they don't want to pay it, so some will do whatever they can to lose you as a client first. And once you're in one bank's bad bank, it's hard to find another bank that will take you on.

Experience Is the Real Scarcity

Mike Krause:

So the only way farmers find out which banks behave well is to talk to independent people like you. And a big part of the value you bring is experience.

Matt O'Dea:

Experience is becoming a real challenge for many, and I only know these things because I've been around a long time, Mike. With respect to all the bankers I deal with, the problem is they don't stay in their roles long enough. If you've got a banker who's been your manager for longer than two years, or even twelve months these days, you're doing quite well. When we run a tender for a client, we sit down at the end and go through not just the interest rate and the fees, but the bank's appetite for agriculture and the actual proposed banker for the deal. It can't just be about price.

On loyalty, a lot of clients over 65 still have a strong sense of it. But I can tell you the next generation is different. For their children, under 24 or 25, there's almost zero loyalty, it's about giving them the best price. And credit to them, they know they can manage a lot of this electronically, with tools we simply didn't have at their age. That access helps their decision making. The only caveat is that the cheapest option doesn't always give you the best quality, but that's how the industry, and the wider economy, works.

Mike Krause:

Matt, thank you so much for your wisdom and for sharing your knowledge. It's a shifting thing, and if we had this discussion in ten years it would be amazing to see what's changed. To everyone listening, please take this as general advice, it's not specifically recommending you do anything, because this is a complex area of finance. But farmers, don't be scared to talk to rural brokers, because they come from a good background and they give a great service. Thanks again, Matt.