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Money into land
25 May 2015
Отримати на e-mail {title} - FUIB

Banks offer agricultural manufacturers ways to finance the sowing season.

The deficit of working capital for the sowing works is more than 12 billion UAH. Farmers can get this funding almost nowhere: Banks do not have the free liquidity, and their resources are too expensive for farmers. So in fact the only alternative to loans today are the resource-free instruments. But even they can not fully cover the deficit of current assets of agricultural companies.

The sowing campaign is struggling with a deficit

Mass liquidation of banks in 2014, which inter alias were engaged in lending to agrarians, lack of liquidity of the remaining players in this market and a significant devaluation of the hryvnia have doubled the funds deficit for the sowing season. "The situation in the industry is difficult. First of all we are talking about a lack of financial resources and a substantial rise in price of spring field work. According to our calculations, in 2014 the sowing campaign cost $ 41.5 billion UAH, this year 66.5 billion UAH are needed. In fact, it is an increase of 65%, Deputy Minister of Agrarian Policy and Supplies Volodymyr Lapa said. - Lack of the working capital of farmers rose fr om 6 billion UAH to over 12 billion UAH." Agrarians can not appeal to the government to get the money - in the first quarter the state budget allocated a total of 60 million UAH to support the industry.

Banks recognize the problem: they are limited in funding, that is why they do not offer farmers loans but other types of support. "From the beginning of the year, we funded agricultural enterprises with 550 million UAH, but a significant amount of it was non-resource financing but avalized promissory notes and guarantees, - the head of the development of corporate projects and partnership of a major bank told. - For this sowing campaign we plan to conduct resource-free operations for over 1 billion UAH and to keep the loan portfolio, which we have - 6.6 billion UAH." The current goal of any bank is to keep the credit limits of the current agricultural customers in the circumstances of the increase in financing costs and reduction of the cost of mortgages.

Gordian loan

The need for funding by Ukrainian banks is experienced in the first place by small and medium agricultural business. Large agricultural holdings have received long-term financing in the foreign market by International Finance Institutions and large trading contractors, or stored their grain at the elevators and now sell it at prices higher than in the autumn. According to Pavlo Kozak, the chairman of the board of ASI, about 40 thousand farmers and 10 thousand middle-size manufacturers work in Ukraine." The share of resource-free financing of SMEs equals 30%. The annual growth for this product in our bank is 70%. Its main advantage is avoiding the currency risk, since the payment of a bill will be performed in the fall in the national currency", said the representative of a major bank. Although it would be difficult even for large companies to maintain the debt portfolio: when in 2014 they managed to refinance 90% of the external debt, in 2015 this ratio will drop to 60%.

However, only part of the agricultural work can be covered by resource-free instruments. "Resource-free financing is an opportunity to attract trade loans from suppliers of imported seeds and agricultural chemicals, who are ready to take the country risk and deliver the goods, but they need bank notes or guarantees. We plan to issue such instruments for 300-400 million UAH, says FUIB's deputy chairman of Board OlexiyVolchkov. - This will close the needs of farmers in means of crop protection and seeds, but it will not allow or just partly allow them to buy fertilizer, as well as fuels and lubricants.
The question is, wh ere to get money for it?"

Alternative sources

The agrarians may go to the banks, but the banks issue loans now only to proven customers, and even then not to all. "The main problem is that even the banks, which have the resources, have significantly tightened requirements for borrowers. And due to the depreciation of collateral farmers can not attract resources. Therefore, we hope the conditions will mitigate ", says VolodymyrLapa. "I would not say that we, like other banks, have strengthen them. Just in the past years, a number of companies that had more or less good finances had favorable conditions to secure, then the collateral covered the basic order of 0.3-0.4 and the collateral in the form of future harvest was accepted," justified OlexiyVolchkov. And now the banks "realize" that they, as lenders, can not sell the collateral in the form of "future harvest," if the borrower is against it. "Therefore, banks are returning to the firm pledges - machinery and production capacities, which should cover 100% of the loan. This, by the way, is a standard approach in other sectors ", said the expert.

Therefore, in the state budget 300 million UAH were allocated on March 2; they will be given to agrarians to reduce the price of loans for farmers: they were promised a compensation of 15 percentage points from the loans in hryvnia and 6 on the currency loans. "According to our estimates, the allocation of compensation will reduce the cost of loans by 3.6 billion UAH", Volodymyr Lapa said. These resources will be distributed between regions in proportion to their share in the gross output of agriculture.

Bankers recommend farmers to make greater use of forward contracts, allowing one to receive financing for the sale of seed under the guarantee of selling grown grain in the fall at a specified price. "It is real to bring in the money of the traders. Nevertheless, agricultural companies are not very eager to use it, since it is expected that the price of grain in the fall will be higher. But this is an opportunity to get money now, and in the foreign currency", says Olexiy Volchkov. Another opportunity to attract money are the agricultural certificates of pledge, but they are being introduced with the support of IFC as a pilot project only in Poltava region, and banks can not receive the refinancing for it from the NBU

Source: FinMaidan

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