National Australia Bank has bent to the pressure brought by the royal commission and will stop charging drought-affected farmers penalty interest rates for missed repayments, despite telling the inquiry just a few weeks ago that the practice met community expectations.
In response to pressure from Federal Agriculture Minister David Littleproud, the bank is also allowing farmers for the first time to use their farm management money to offset against loans.
Mr Littleproud said the change could potentially help a lot of families.
"This is an investment in agriculture's future and farmers can now vote with their wallets," he said.
"I hope other Aussie banks follow NAB's lead and get on board."
NAB's head of business banking, Anthony Healy, told the ABC's The Business there were many things that told the bank it had to change.
"Including the conversations that we have with our farming customers … and of course feedback from reading the media, the royal commission and other sources made us realise we had to do more to win back trust in rural and regional Australia," Mr Healy said.
NAB chief executive Andrew Thorburn met with customers on Monday on farms around Wagga Wagga, in New South Wales Riverina district, and addressed a meeting in the evening continuing his "we will do better" mantra.
NAB is the country's biggest agri-bank, boasting one in three farmers bank with it.
Mr Healy would not put a number on what the new measures would cost the bank's bottom line, and said it was not about getting one over its competitors.
"My hope is that the whole industry will step up and make this commitment, so we're not making this for competitive advantage," he said.
Farm accounts to remain separate from home loans
In a display of the struggles that NAB has with its systems, the technology will not allow farm accounts to have the same simple offset account that home loan customers have.
Instead of reducing the interest due on the principle by however much is in the offset account, NAB is instead offering interest rate discounts which Mr Healy said would average 50 basis points.
When it was put to him that it was strange the system the bank used for hundreds of thousands of home loan accounts could not be just replicated for farming customers, Mr Healy agreed.
"Yes, well I would like to think it was that simple too, but it isn't," he said.
He explained that home loans and rural business banking were in two "completely different programs", but that it was something the bank hoped to streamline in future.
The bank is offering immediately relief from interest rate penalties for customers in drought declared areas — but would not commit to extending that grace to any customer hurt by future natural disasters including flood and cyclone.
"That is a good challenge and that is probably the direction that we are heading," said Mr Healy, adding there was more work to do before the bank could commit to that.
He rejected the suggestion that the drought relief was just a short-term measure while the bank faced increased scrutiny from the royal commission and Canberra.This article was first published by http://www.abc.net.au/news/By The Business presenter Elysse Morgan