In their advertisements, banks constantly tell us their top goal is to put customers first, whether it's by "proudly supporting Australia" in the case of Westpac, or National Australia Bank's claim to be about "more than money". Bank of Queensland even boasts: “It’s possible to love a bank.”

We all know this is advertising fluff but the gap between the glossy claims and some of the treatment of customers hasn't been lost on royal commissioner Kenneth Hayne.

More than most businesses, farms are hostage to forces beyond their control.

More than most businesses, farms are hostage to forces beyond their control.

Photo: Tamara Voninski

"Is there a disconnect between what the banks are saying in their advertising, their annual reports, their other public documents, and their conduct?" the former High Court judge pointedly asked earlier this month.

This potential gulf between the marketing and reality is likely to come into particularly sharp focus this week when the royal commission turns its focus to the treatment of farmers.

Why? Because even if you're not moved by heart-wrenching tales of small farmers being forced off land that has been in families for generations, the cold-hearted commercial reality of farming is different to other types of business. This should logically lead to different treatment from banks. But whether banks have taken this on is up for debate.

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More than most businesses, farms are hostage to forces beyond their control. Drought, floods, pests, and swings in export markets all mean there will be good years and bad, which is why having a supportive banker is important.

This week's hearings in Brisbane are a way for some farmers to air their often harrowing stories of disputes with banks. That in itself is worthwhile.

But the hearings should also act as a platform to test just how much banks' recognise the unique challenges of rural business.

Australia no longer rides on the sheep's back, but farming is still big business which makes it important for banks too. Rural products accounted for $51.5 billion in exports last financial year, almost a fifth of merchandise trade, and there is about $70 billion in outstanding rural debt.

Banks hold 96 per cent of these loans, a share that's increased substantially over the decades at the expense of other sources of finance such as pastoral finance companies or government-backed loans.

There's a live debate about whether the $3 million threshold for what the banks treat as a small business should be higher.

There’s a live debate about whether the $3 million threshold for what the banks treat as a small business should be higher.

Photo: Jessica Shapiro

But as they have amassed this dominant position, banks have been accused of abusing their power. Critics say banks too often rely on little-known contract terms or conditions to suddenly change the terms of farming loans in their favour when the going gets tough.

For example, the bank might require a customer who has never missed an interest payment to suddenly pay back a large chunk of their debt, much earlier than expected, because a change in the property's value has caused a blowout in the loan-to-valuation ratio.

Failure to comply with the bank's wishes triggers a default, which can cause the property to be repossessed.

This sort of behaviour is a particular problem when banks buy a loan book, only to discover the newly acquired loans are riskier than they would like.

ANZ's 2010 purchase of Landmark Financial Services from AWB has led to a series of farmers facing heavy-handed demands from the bank, which has admitted it mistreated some customers.

Commonwealth Bank has faced similar accusations over its treatment of customers following the purchase of Bankwest but denied wrongdoing. The consequences of both takeovers on some customers will be explored this week.

In their defence, banks insist they do work with farmers to get through tough situations, pointing to historically low numbers of borrowers falling behind on their loans.

They point out there has been progress such as the removal of some of these "unfair" contract terms in small business loans, or those below $3 million.

And as with previous rounds of public hearings, banks will no doubt attempt to defend their actions as a response to commercial risks, with the implication that adding further restrictions would harm their ability to lend.

When the royal commission looked at similar stories in its small business hearings last month, counsel assisting did not find systemic wrongdoing and did not recommend much new regulation.

But the farming hearings could well be different, because of farming's distinctive traits.

For one, there's a live debate about whether the $3 million threshold for what the banks treat as a small business should be higher, especially in the rural sector.

Farming groups say the amount of capital needed for farming land and equipment can mean family-operated farms frequently have debts that are larger than $3 million, which means they have no protection against unfair contracts.

A related sticking point is a bank industry pledge to give small business customers a minimum of 90 days' notice if a bank is deciding not to renew a loan to a farmer or other small business. Banks have suggested farmers will get "up to" six months notice under the proposed changes.

But small business ombudsman Kate Carnell says farmers must be guaranteed a longer notice period than the 90 days given to other businesses, because selling or refinancing a farm is far more time-consuming and complex than say, selling an urban shopfront.

Throughout these debates about the nitty-gritty detail, the common question is whether banks are really playing the long-term supportive role they say they are. Or, as Hayne has wondered out loud, perhaps there is a "disconnection" between the banks' claims and reality.

Clancy Yeates writes on business specialising in financial services. Clancy is based in our Sydney newsroom.

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