Summary of the dairy portfolio stress testing exercise

Release date
Vol. 79. No. 5. March 2016
Ashley Dunstan

In late 2015, the five largest dairy lenders participated in a stress test featuring sustained low milk prices and sharp falls in dairy land values. This article summarises key insights from the test. Banks report expansion in dairy lending, at least in the near term, as they support existing borrowers facing negative cash flow. Consistent with earlier work, the scenarios generate significant increases in loss rates that are manageable for the banking system as a whole. There is a risk that the time taken to resolve stressed dairy exposures could be longer than reported in the tests, creating an ongoing source of uncertainty for banks.