Who would be a rural lender? A couple of years back the question would have seemed nonsensical. Now the question is quite obviously rhetorical.
A backlash against the major trading banks is brewing in New Zealand's rural heartland.

Before the financial turmoil banks were lining up to lend on rural land. As one rural businessman told me last week, banks only needed to see a few green shoots of grass and the cheque book would open.

The result is evident in the rural lending figures that have been making the headlines. Since 1990 rural debt levels have increased at 12% compound from around $5 billion to $45 billion today. But the rate of debt accumulation has been particularly marked in the last eight years, rising 17% a year from about $12.5 billion.

Associated with this surge has been a fourfold increase in rural land prices - a rate of growth that well outstrips the productive capacity of the land.

The result, in short, was a bubble. Expanding credit led to rising land prices, which in turn reinforced already-ingrained beliefs that land prices would not fall and more debt-fuelled investment. This in turn led to further lending, rising land prices and so on. Everyone was making money, everyone was happy and in rural New Zealand at least this was thanks to the ever friendly rural banker.

The surge in lending to the rural sector was part of a worldwide rise in the availability of credit. The dynamics of the rural sector were exactly the same as those that unfolded in global residential housing markets, albeit with less of the excesses that characterised the US subprime boom. At least farmers in New Zealand had assets and were producing real cashflows.

Two-thirds of rural lending has been concentrated in the dairy sector, which is now bearing the brunt of a dramatic change in attitude from the banks. Of course there is much variation, but at Fonterra's forecast payout for next season of $4.55 per kilogram of milk solids, the average dairy farmer is not profitable.

Talk to almost any accountant in the Waikato and you are sure they find they have a client that has overindulged. The worst cases are those farmers who bought land last year at the height of the commodity boom believing the demand from China and India would push Fonterra payouts to above $7 for years. These farmers paid as much as $46,000 a hectare and are now struggling to cover their interest costs. As expectations of lower dairy payouts fed through to (lower) land prices, they have found little support from their formerly-friendly rural banker.

Faced with these developments, as well as the global credit contraction, it is no surprise that banks have become much less willing to lend. And despite media reports of late, they are not rorting the public. They have offered a competitive product.

Although recent lending is looking more lucrative for the banks, recent bank earnings reports showed net interest margins, the best proxy for bank profitability, are lower in New Zealand than they are in Australia. Finally, it is not as if farmers were forced by gunpoint to borrow. Those who borrow imprudently must shoulder fault as well.

But that is hardly the point.

What appears to bothering rural New Zealand - and this is a view based entirely on anecdotal reports - is that banks are systematically winding back credit well beyond what is justified by the deterioration in profitability.

The lucky ones are those who have been able to maintain their banking facilities with their covenants untouched. The ones who are finding it toughest are those who have been told by their banks that they must reduce their gearing even with sale of assets such as the family bach or boat and then are being asked for more. More than once last week I encountered such stories of woe.

And this flies in the face of the banks' rhetoric of trusted financial advisers or business partners from one generation to the next. Farmers, if the anecdotal reports are correct, are starting to believe the partnerships are tilted less in their favour.

If the past few months have shown anything it is that the banks' profit imperative is much closer to the service rural New Zealand earlier thought.

Farmers and rural businesses will take offers of debt much more cautiously and given the experience of the last few years are likely to become much conservative about how much debt they are prepared to tolerate.

The high-finance buzzword of de-leveraging - paying down debt - has made its way to rural New Zealand.