National Australia Bank chief executive Andrew Thorburn said in Wagga on Monday the bank would no longer charge penalty interest rates on farmers who had fallen behind on their repayments.

“If they go into arrears we normally charge a higher interest rate, we’re not going to do that any longer,” he said. 

“It just makes it harder for them.” 

The move was prompted by the request from their agri-clients and Mr Thorburn said it was the “right thing to do”. 

Mr Thorburn acknowledged there are farmers who suffer due to tough climates, but aren’t in a classified drought zone, who will miss out. 

“I think we’ll keep reviewing it, at the moment we have just focussed on drought-affected areas because it’s so extreme and more and more areas are being categorised as drought-affected,” he said. 

Mr Thorburn, who said one in every three Australian farmers bank with the NAB, admitted during his speech in Wagga on Monday night that the bank had "lost touch" with some of its rural customers. 

The company also announced the new measure of farmers being allowed to offset their farm management deposit against their agricultural lending. 

“We think there is a lot of potential in rural and regional Australia as well as in the cities and we really want to focus on that,” he said

“We have farm management deposits, so these are for our agri-clients who have money in these special accounts, but we have never allowed them to offset it against their loans and now we are going to and that’s really big.”

The concept is similar to what is applied to home loans, Mr Thorburn explained.

“If you have a home loan of a million dollars and your transaction account has, let’s say, a balance of $20,000 that gets offset against the loan amount,” he said.

“Effectively the interest amount is $980,000, the money is working for you because it is reducing your interest home loan rate.”

Mr Thorburn said it’s easier with home loans because it’s one person, property or a couple, but it’s more complex with agricultural lending.

“There’s trusts, there’s companies, there’s multiple borrowers and there’s different securities,” he said.

“The farm management deposits is an account that farmers use and that has tax benefits.

“We have not allowed that in the past to be offset against their borrowings because it’s complicated.”

All of NAB’s clients with these accounts will be notified of the changes and there will be a ‘particular’ process.

“Of your loans you tell us which one you want to offset it against, which is point one,” Mr Thorburn said.

“Point two, rather than doing the straight offset which is more complex, we are going to adjust their lending rate to enable their offset to occur.

Managing partner of NAB Nicole Killen, said farmers will effectively be able to defer their income.  

“They’re able to lock that away for 12 months, two years, three years because their farming seasonality is good in particular years, but they’re able to pull it out in those years that they are poor-performing,” she said.

“What Andrew is announcing now, is that they’re getting that tax benefit in addition to the interest benefit.

“It’s the first time we’ve done that.”