The share of agriculture industry in GDP of Ukraine is constantly growing based on the further development of the industry, which is an evidence of its significance in terms of the country. At the same time, the prospects of the agricultural industry growth prospects demand an open and full funding, the transparency of the baking operations and the openness to new ideas. For the last years banks with both international and Ukrainian funds develop new, accessible and understandable for all the market participants of Ukrainian agrarian business types of financing and applied instruments. All these opt for minimizations of risks and creation of the optimal conditions of the collaboration for both parts.
How for the last year the financing of agriculture industry has changed? What key trends of financing of agribusiness prevail in Ukraine? Have the trust of agribusiness to banks increased and vice versa what new instruments of agricultural and trade financing could be used by agrarians and traders?
APK-Inform decided to raise such an important topic for the agricultural market of Ukraine and talked to leading experts in the area of agrifinancing.
In the form of short questions the banks’ representatives were asked such questions as:
1. What key trends of the agrarians lending have been a feature of your bank during the last year? Were there some renovations of the partnership programs or of principles of collaboration with the agriproducers before the sowing campaign in 2019?
2. Does your bank have the program of financing of agritrading operations? What problems of the development and risks of operations in this area would You note?
3. How have the loan interest rates and the cost of the credit resources changed compared to previous year? What were the main reasons for the changes?
4. What are the main risks of crediting operations of the agricultural enterprises this year? (Has presidential elections became one of such risk?)
Sergey Shchepanskyi, Head of Executive Board of Agroprosperies Bank
1. We follow the chosen business model - we finance the small and medium agriproducers laboring around 100 ha of the arable lands on the loyal conditions to the background and the rational approach of the borrower’s evaluation.
The final factors for the credit findings for us are the level of the agricultural technologies of the farm, the experience, the financial condition and the business reputation of the farm rather than hard pledge.
2. Our bank offers the finance on the pledge of the future crop and the agrarian acquittance, that simplifies the access of the farmers to the resources and the new machines.
During the last year we actively concluded partnership programs with the producers and the delivers of the agricultural machines. The feature of our programs is the crediting period op to 7 years and the the ability to purchase the machines without the obligatory initial contribution.
But we constantly searching for something new, that have never been offered before. So, in 2016 we were first to understand the potential of the agrarian acquittance and not to be afraid to use it. In 2018 together with Group «Agroprosperies» and one more foreign bank we launched the unique Agricultural program called AP Franchise - successful turnkey agriproduction. In terms of this program the farmer receive the full complex of services which simplify the business management and allow to receive higher profit. Our client received the first results which are definitely pleasant. Everyone who used this program decided to prolong it in 2019.
3. For the last year the loan interest rates increased. The country was imposing martial law, the Ministry of Finance attracts the funds with 19% rate and the reference rate of NBU totals 18%, the deposit rate also increased significantly. Thus, the crediting became more expensive.
4. In my opinion, there will be no severe changes. The production of grain hardly depends on presidential elections. The prices for the inventories and the grain forms globally and our political situation is unlikely to change the global conjuncture. We help our clients to fix the prices for grain on the forward contract basis and also, while deciding to grant a credit we analyze in details the chosen agritechnology. As a result, the number of non-performing loans in our bank portfolio is less than 1%. So we are very positive and in 2019 we plan to increase the portfolio of the agricultural loans 1.5 times and also to launch new credit products.
Natalia Porvina, Director of the Financial Support for Agribusiness, Kredi Agricol Bank
1. The agricultural market of Ukraine is characterized by the constant dynamics that leads to the changes of trends of agricultural crediting. During the crisis many agriproducers significantly tempered their “appetite” for the long-term funding and focused mainly on the replenishing their working capital. However, together with the improving of the economic situation we can also see the changes of vectors of agricultural companies financing, and 2018 was not an exception. Last year the bank was actively taking part in the financing the construction of infrastructural objects, warehouses and processing plants, the purchase of grain cars and agricultural machines.
Here we should note the development of the partnership programs with the producers and dealers of agricultural machines, the manufacturers of elevator equipment. The programs provide more loyal conditions of financing which attracts high interest of agriproducers. As for today the bank has 30 such programs. In 2018 the volume of loans in terms of these programs increased significantly.
Also, the partnership programs of banks with seeds manufacturers and producers of PPP develop actively. Here we speak about the instruments of trade financing in the form of bank warranties and bill avalization. These bank products have several advantages for the clients: the absence of risk of product price changing due to currency exchange fluctuations, the special policy of discount when paying by bill, the cost of financing is way below compared to bank loans. The volumes of financing in terns of these programs in the bank growths from year to year.
The process of the updating of partnership programs is permanent, every year we adapt them with accordance to the clients’ and partners’ needs. The bank is totally open to dialogue with agribusiness in order to offer the client the resolutions fully meeting their needs.
2. The bank actively works with every agrimarket participant including the agritraders. We collaborate with the largest market operators both Ukrainian and international.
The Bank provides the agritraders with traditional products of crediting, before- after- export financing, and the instruments of the trade financing.
The are some peculiarities of work in this area, but if you know this business, this market, there are no problems. We work with the companies that have solid reputation, transparent and structured business model, professional management, good financial positions. We know the market, keep a close watch on the trends of industry development and also the possibility of possible losses. As a rule, our risks are minimal.
3. Everybody knows that for the last year the cost of the credit resources increased. This is a consequence of the conditions set on the market and the monetary policy of the regulator.
Of course, our bank cannot influence everything. But for our part we can say offer our clients the products, instrument of financing that allow to decline the clients’ expenditures for financing. These are more loyal financing conditions in terms of partnership programs and the use of trade financing instruments the cost of which are way lower compared to standard crediting.
4. The main risks that bank face when financing the agricultural sector are the obstacles of agricultural enterprises in forecasting their money flows. The unpredictable weather patterns, the changes of the regulatory policy of the government, the fluid situation on the foreign markets of distribution, the logistical problems – all these adjust the agricompany operations. We live in a fast-pace world and our planet face severe climate changes. This also influences Ukraine. However, all of the previously mentioned risks must be considered as threats that would constrain the market development. In terms of constant changes not the strongest survives but the one who is able to adapt quickly to the new conditions. Today, the breeding develops fast. Due to the deficit of moisture the new drought-tolerant hybrids appear. The structure of crops changes. Also, the precision farming and the unitization of irrigation are developing. The share of product with added value in the agricultural sector grows, also there is an increase of the storage capacities, processing and port transshipment.
A balanced approach to analysis, to understanding of the industry characteristic and the timely response to the market changes allow the bank to minimize the risks and to effectively finance the agricultural enterprises.
Alexander Matyushenko, Director of Corporate Banking Department of Bank “Pivednnyi”
1. The Bank “Pivdennyi” traditionally lays emphasis on the large corporate business. At the same time, taking into account that 90% of the enterprises and cooperatives producing the agriproducts are small and middle enterprises in terms of profit, the priorities for 2019-20 will be focused on these market representatives. The widening of the presence in the segment of small and middle sizes business, the widening if the list of the partners and the joined programs the agri machines purchase, etc, are the main tasks for agricultural business in the short-term perspective.
2. The agricultural segment, apart from the agriproducers is represented by the sufficient number of large traders, that specialize in storing, logistics and trade of the products. For these market representatives the bank offers the financing in the form of “free” limit – e,g, the bank funds the floating capital of the trader for collateralized liquid assets and at the same time controls the first step of trader – the purchase of the products and payment of the current expenditures.
3. The traditional financing with/without the contract binding has some risks in terms of logistics and the risks of the timely payment made by the buyer. In one case, these risks can be lowered by means of the securing, and in the second case – the systematic control of the proper use and return of the credit funds.
2018 was a turning point of the price formation of the crediting in the national currency. The deficit of hryvnya on the interbank market, the accounting rate increased from 14.5% in 01.01.2018 to 18% in 31.12.2018 made the financial institutions to revise the approaches of the prices formations towards their increase.
At the same time, we would like to note that for us the absolute terms of financing rates are important but not determining factor.
4. The key risks of agribusiness regardless the year, the elections and other internal factors, are unchanged - the exchange rate fluctuations and the yield of the crops in Ukraine and in the main global producing countries. Herewith, the yield in other counties forms the global prices which in turn pressures the market prices in Ukraine.
The yield in 2019/20 MY can increase despite the low provision of agripoducers by mineral fertilizers.
The currency risks have more influence on the agriproducers that trade on the domestic market and on their ability of loan repayment because the expense portion and the clearance prices are depend on the national currency.
Prepared by Anna Tanskaya and Alina Trofimtseva, APK-Inform Agency