Changes urged for distressed farming loans

The banks are under pressure to stop forcing farmers off their land, with the banking royal commission recommending that be a last resort of action on loan defaults.

Royal Commissioner Kenneth Hayne's report, handed down on Monday, has recommended that banks should only be able to call in administrators or receivers on defaulting farmers when all other avenues are exhausted.

The inquiry heard emotional stories of farmers' problems with banks, including from some drought-stricken graziers who had been hit with hefty penalty interest for defaulting on their loans.

Mr Hayne has further recommended that only experienced agricultural bankers deal with those loans and mediation as soon as a loan is classified as distressed.

He also wants banks to stop charging default interest when there is no realistic prospect of recovering the amount charged.

In its response, the Morrison government says it supports the banks act on the recommendations aimed at how they handled distressed agricultural loans, but at this stage is taking no direct action.

However, it is setting up a national scheme to help farmers seek mediation to work out a way for them to repay their loans where possible.

"The government further supports mediation occurring soon after the loan becomes distressed and not as a last measure prior to the lender taking enforcement action," the government's response said.