Banks face more loan losses from their exposure to agribusiness, an analyst has predicted, as weak conditions and heavy debts take a growing toll on farmers.
After recent profit downgrades from Elders and Nufarm, a new report by CLSA banking analyst Brian Johnson says banks could bear the brunt of a slump affecting several agricultural areas, especially wheat and live cattle.
With the official forecaster also predicting lean times for farmers, Mr Johnson wrote that a growing number of agribusiness borrowers could come under pressure from high debt levels and falling land prices.
Mr Johnson's report argued that waves of bank loan losses in cyclical industries were caused by "euphoric" lending in good times, followed by credit rationing when conditions soured.
"Australian bank agricultural lending portfolios demonstrate this cycle better than most, with loan losses set to rise," it said.
Particular pressure points included northern Australian beef production, hit by weak exports and falling land prices, and the drought-affected West Australian wheat belt, the report said.
NAB is the nation's biggest agribusiness lender and, the report noted, ANZ also has a higher exposure to primary industries.
Latest figures from banks suggest asset quality remains strong, but Mr Johnson said "the reality could yet be worse" given the pressures on business borrowers from the high Australian dollar, and banks' inability to see loan loss cycles coming.
The prediction comes after agribusiness lender Rabobank last month reported a 10.5 per cent rise in Australian after-tax profits in 2012 to $234 million, amid "challenging" conditions and a rush by borrowers to pay down debt.
The Australian Bureau of Agricultural and Resource Economics and Sciences also expects "subdued" conditions in the sector, with export earnings tipped to fall slightly in 2013-14.
Fertiliser maker Nufarm last week slashed its outlook for profits, after reporting a 53 per cent slump in earnings in the first half.