Allied Irish Banks (AIB) is using a derogation level of 220kg organic nitrogen per hectare when stress-testing loans to the dairy sector.

The bank confirmed that a derogation level of 170kg N/ha is not being used when assessing new lending applications from dairy farmers.

However, AIB said greater clarity on the derogation was urgently needed both by farmers and the banks.

“We started stress-testing loans at 220kg N/ha more than 12 months ago, before the announcement of the change in the derogation,” said Donal Whelton, head of agriculture with AIB.

“We are having conversations with our customers on the impact of the reduced derogation, and I believe this is only prudent, when farmers are considering taking on borrowings for long-term investments,” he added.

“However, we are obviously keeping matters under review and – no different to the wider industry – clarity on the derogation, in so much as is possible, would be very welcome,” Whelton pointed out.

“This would provide greater confidence for both farmer borrowers and the banks,” he said.

When asked if Bank of Ireland was using a derogation level of 170kg N/ha when stress-testing loans to the dairy sector, a senior official said each lending decision was assessed on a “case-by-case basis”.

“We take many factors into consideration when it comes to lending decisions; including stocking rate, long-term profitability, succession and future plans,” said Eoin Lowry, head of agriculture with Bank of Ireland.

“Each lending decision is reviewed on a case-by-case basis. A lot of it is about understanding the future needs of the farm,” he maintained.

“We keep all EU policy and legislation under review. We encourage any customer concerned about future stocking rates to talk to us,” Lowry added.

“We remain confident about the dairy sector and its future,” he said.