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Top 200 agricultural companies: Lending becomes more expensive
29 December 2014
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The current year was a year of major transformations for almost all areas of business. The crisis dealt a blow both to farmers who have lost part of their income as a result of falling prices in the world markets, of the closing of the Russian market and as a result of military actions, and a blow to the banks, from which the population began to withdraw money massively (as a result, financial institutions started to have problems with liquidity and capital).

However, the loan portfolios of the most banks for agribusiness are still growing. With a general decline in lending it was made possible by concentrating exactly on agricultural business. As the industrial production fell, financial institution had simply nobody else to give loans to, bankers say. Over the past two years only the agrarian sector showed growth in the economy.

To go against the tide

Despite the difficult economic situation and the cut in loan programs, in 2014, many banks were able to almost double their share of agricultural portfolio. Among these financial institutions is the bank "Nadra", which previously has not been so active in this segment. FUIB is another universal bank that almost doubled its portfolio of loans for agricultural sector. A year ago, the portfolio amounted to 1.2 billion UAH; according to the results of the first half of 2014 it rose to 2.2 billion UAH. Thus, the share of agricultural business in the loan portfolio of the Rinat Akhmetov's bank has risen to 13%, and up to 24% in the SME segment.

Prices bite

At the same time, the cost of loan resources remains rather high. To date, interest rates in the agricultural enterprises' loan market fluctuate in the range of 22-26% in hryvnia. The cost of resources primarily depends on the level of liquidity of the banking system and other macroeconomic factors. "Lowering rates can be expected only after the stabilization of the economic situation in the country," — says one of the market participants.

With his assessment agrees the FUIB's deputy chairman of the board Olexiy Volchkov. "Customers' rates depend both on the costs of resources (deposit rates), on the risk profile of the transaction (structure, conditions) and on the borrower in general (financial status, business scale)", he adds.

The cost of loans in dollars reaches 10-12%. High country risk of Ukraine, unfortunately, had a negative impact on the cost of funding in foreign currency.

However, bankers point out that the lowering of the cost of resources is possible. To do this, they propose to use a wider range of financial instruments. Among them are aval bills (regardless of the size of the enterprise) as well as covered and uncovered letters of credit, the cost of which (unlike a bank loan) is only 2-5% per annum. In addition, bankers suggest using the possibility of providing loans to leasing companies. High turnover of hryvnia tranches also significantly reduces the cost of resources.


Financial institutions are cautious in assessing the creditworthiness of borrowers and increasingly tighten the collateral requirements. The most common practice is a combination of "hard" collateral and goods. As a rule, these are production facilities, elevators, equipment, collateral of contracts with world-class customers, goods in turnover or fixed balance in stock. In some cases, banks may take "future harvest" as collateral. "Daughters" of international companies often offer guarantees or letters from their parent institutions as collateral.

The situation with collateral in the segment of primary production is more complicated. Banks can not take land as collateral, and agricultural machinery, as a rule, is either leased or simply insufficient to cover all the risks, he said. In this case, other assets of the agricultural holding that are not related to primary production may be virtually the only option for the collateral, of course, if there are any.

The amount of security is determined individually, based on many factors (history of working with the borrower, their financial condition, level of loan load). All depends on the liquidity of coverage. However, most bankers agree that in the current situation, this mentioned ratio can reach 1.5-2. This means that the agricultural business needs to stock up a 200%-guarantee, before applying for a loan.

Common problems

The banks complain that insufficient capitalization of business and complexity of the industry access to "long" investment resources remain one of the main issues in the agricultural sector today.

As the agricultural business has an obvious cyclical nature, agricultural business companies finance their working capital mainly through bank loans. However, bankers have inconsistencies in the loan period. "The most demanded by agricultural companies is the medium-term (up to 18 months) financing for replenishment of working capital, which allows them to sow in autumn and to sell their crops in winter and spring of the next year. At the same time, in the current situation, many banks may not provide funding for such a long term, which is primarily due to the urgency of resources involved, which at the moment are mostly in the range of up to 90 days," says Olexiy Volchkov.

In addition, the agricultural sector loans in 2014 were influenced by unfavorable price and not only by the environment.

Bankers say that the companies and businesses whose land, production facilities and equipment are in the ATO-zone were seriously affected.

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