The National Australian Bank has promised to scrap penalty interest rates on drought victims who fall behind on their repayments, admitting that it had “lost touch” with needs of rural communities.

The announcement comes as a direct response to revelations from the banking royal commission.

The hearings earlier this month exposed harsh treatment on the part of some banks, including NAB, towards customers who were unable to service their debt because of droughts and floods.

But in a speech in Wagga Wagga on Tuesday, the bank’s chief executive Andrew Thorburn was contrite, promising a change in the way the bank treated rural customers.

“Rural challenges are real, and we need to determine how to support these areas better,” Mr Thorburn said.

“This is a message we’ve heard loud and clear from farmers and rural customers right across the nation – many of whom have been affected by drought conditions.

“The royal commission and other inquiries reveal that in some cases we have lost touch.”

He said the bank would make three changes.

First, it would allow regional customers to reduce their interest payments by offsetting borrowing against a “farm management deposit” – a similar principle to a mortgage offset account.

Second, it would stop charging a higher default interest rate for customers that fall into arrears on their loan repayments as a result of droughts.

Finally, Mr Thorburn said more resources would go into keeping rural bank branches open, as well as into “ag tech” – or agricultural technology.

The next round of royal commission hearings will begin on August 6 and will focus on superannuation.