Zerno April 2021
Agro season of 2021 gains steam and farmers’ need in machinery and equipment is more urgent than ever. Do you need to renew the stock of machinery and tractors, but you do not know where can you get money for it? Loan? Maybe. Leasing? Sounds like a plan! New player on the leasing market – Credit Agricole will scratch the itch of agricultural companies for technical perfection. Reliable partners of the Bank such as leading manufacturers JOHN DEERE, CLAAS, BERTHOUD and their official dealers, will help. The Bank also offers the lease of the machinery of its partners – well-known companies POLETECHNIKA (agricultural machinery and equipment) and WINNER (passenger and commercial cars). On top of that, Credit Agricole has profound expertise: in Europe, a special group of companies Credit Agricole Leasing and Factoring is engaged in leasing and factoring. Deputy Member of the Management Board of Credit Agricole Bank Alexandre Tchesnakoff and head of the Leasing Division Yurii Vasylenko were happy to share their thoughts about how leasing can help agricultural business.
Signing of partnership agreement with Winner Leasing
“Zerno” magazine. A medium farmer who cultivates 3-5k ha of land comes to you. What would you recommend to him – leasing or a loan?
Yurii Vasylenko. We would offer all potentials of a loan and leasing. We do not face a task to sell any particular product. We focus on customers’ needs instead. Someone would prefer a loan, because he wants to own a property and know that, for example, registration certificate proved that he is the owner of the tractor and he is ready to repay the loan with peace of mind. Another customer would choose leasing, because he needs tax credit. He also receives additional guarantees and support from leasing company or a bank that provides leasing of machinery. Insurance and registration of the asset with a state authority are already included in the leasing service. We perform this work instead of the customer and often it is much cheaper and faster than if he would deal with it by himself. Therefore, the customer receives a ready-to-go tractor, combine or any other machinery. That is why before offering a product, we learn about customer’s needs, specifics of his business and find out what he is used to work with. Some accountants know how to work with loans and so he would suggest that his company’s owner uses a loan, while some people would prefer leasing.
“Zerno” magazine. A person may have negative experience of using a loan or leasing. Does he/she often opt for another product because of it?
Yurii Vasylenko. Sometimes we deal with companies, which have had negative experience with leasing or loans before. Our task is to provide the service of benchmark quality so that the customer would be satisfied and come around on it. We offer the European product with transparent terms, without any additional fees, hidden payments, etc. Our target is to make the customer like it. And that at the stage where we haven’t concluded an agreement yet, namely the stage of indicative offer, the customer wouldn’t have any doubts about our good faith and sincere motivation to build on mutually beneficial partnership.
“Zerno” magazine. Let us explain what leasing actually is to a person who has never used it …
Yurii Vasylenko. The word “leasing” comes from English word lease – rent. The main difference is that under a lease agreement an object is provided for a long-term lease. The asset is transferred to the customer for temporary full use and ownership. The customer comfortably uses the machinery in its economic activity, makes money off it while working capital is freed up since there is no need to pay 100% of asset value at once. He just doesn’t have the right to sublease, sell and alienate the machinery. We recommend the customer that he chooses the lease object from reliable official supplier, which he is used to work with or ask the lessor what suppliers he works with. Credit Agricole has partnership agreements with official suppliers and vendors under which we offer special price beneficial to the customer. So, having chosen the machinery, the customer gives the commercial offer to us and we decide if this asset is appropriate for financing under the terms of leasing. We provide movable property on lease, which can be sold should the customer has any problems with solvency – it is safer this way for both the bank and our customers.
“Zerno” magazine. What machinery are you talking about?
Yurii Vasylenko. Tractors, combines, towing equipment, sowing machines, plows, sprinkler systems – everything that does not require fixed installation. So, if we are ready to finance the chosen asset, we send the indicative offer providing for insurance, registration or any other additional services, if required by the agreement, to the customer. If it is a current customer who already has the limit with Credit Agricole, the procedure will be quick. If it is a new customer, we will ask for a small standard package of documents such as balance-sheet form 1 and form 2, turnover balance sheet and breakdown to the financial statement. If everything is okay, we will conclude the leasing agreement and hand over the machinery ready for use.
“Zerno” magazine. How much time does it take for everything?
Yurii Vasylenko. There is no strict deadlines in leasing – it might take one, two or three days. Everything depends on the project and its complexity. This process moves faster in case of agricultural machinery, and a bit longer in case of cars. More state agencies are involved in the car leasing process. For instance, a combine requires registration with only one agency, and the process of car registration involves DMV and military commissariat, which work with registration-related issues only two days a week. For this reason, the whole process may take 5–7 days. It usually takes us up to 10 business days to make a decision and hand over the machinery to the customer. However, if the machinery needs any enhancement and special upper structure (for instance, we have recently provided financing for bakery vans for which Peugeot chassis were ordered), re-equipping and certification may take from four to six weeks. We take customers’ tasks of any complexity.
Although time periods are more varied in leasing than those in case of a standard loan, time necessary for decision-making is almost the same. We often process the customer’s request and give our preliminary decision within a day. Typically, there is no need in overthinking. Nevertheless, we, by all means, check the customer’s business reputation: he should comply with international standards, not be involved in corruption schemes of any kind or work with sanctioned countries, organizations or persons. Sometimes, such check takes extra time.
“Zerno” magazine. What is the limitation in terms of cultivated land area, which the farmer – your customer should have?
Yurii Vasylenko. Our current standard is a land bank of at least 200 ha. However, we consider customers with land bank of 50 ha and more as well, because we offer leasing for low-powered tractors among other things.
“Zerno” magazine. Is the machinery that is provided on lease entirely foreign-manufactured or is it possible to get a domestically produced asset on lease?
Yurii Vasylenko. We have not placed limitations on our side. We clearly prefer machinery from foreign manufacturers, but there are quite worthy ones here in Ukraine, too. “Kobzarenka plant” produces excellent machinery, which is in great demand not only domestically, but also abroad. We are happy to consider it as the leasing object.
Alexandre Tchesnakoff. We consider liquidity of the object we finance.
Yurii Vasylenko. We have had requests for €20 mln worth drilling stations.
“Zerno” magazine. Wow!
Yurii Vasylenko. Obviously, we do not consider such requests now. Needs of the business are diverse. Meanwhile, we understand which domestic manufacturer does what. Sprinkler systems and tillage machinery produced in Ukraine are good enough.
“Zerno” magazine. Leasing entails related services. What are they and can the customer decline them?
Yurii Vasylenko. The principle related service is insurance. As the owner, we are obliged to insure the asset, but on the other hand, it is the service. The customer may decline it and get an insurance for the asset from insurance companies, which are approved by us. Those are leading insurance companies and their risks are assessed and acceptable for the bank. However, should the customer fails to pay we have the right to get the machinery insured by ourselves and bill the customer for these expenses.
“Zerno” magazine. A farmer might want to conclude agreement with the insurance company that he has certain history with: the one where he has been insured against drought, frosts, and where he has been getting a car insurance from…
Yurii Vasylenko. Yes, there is a certain degree of freedom indeed. And that’s right, because it increases the customer’s trust in the bank and creates partnership relations between us, the customer and insurance company.
“Zerno” magazine. This sowing season that begins now is the first real business season for your leasing offer since it was launched the last autumn. Was 6 months enough for you to get insight in specific aspects of the Ukrainian leasing services market?
Alexandre Tchesnakoff. Obviously, in Ukraine, agricultural production is more of an industry than that in France, where the Credit Agricole Group comes from. In France, farms are considered small if they have 10–20 ha, and large if they have 100 ha and more, while here in Ukraine, farms with 100 ha are considered relatively small companies. Cooperatives are very popular in France and they can lease machinery for sharing among all members of a cooperative. That is not the case here. In Ukraine, farmers buy powerful machinery, which in France are usually just for displaying at exhibitions. That’s the difference. In Ukraine, agricultural production specializes in big crops like wheat, corn, sunflower, while in France there is a greater diversity of crops, particularly vegetable crops. One more feature of Ukraine is that there is always a customer who wants to buy something at the last moment.
“Zerno” magazine. What is the average amount of financing?
Yurii Vasylenko. Amounts of financing just like machinery prices are different. An average amount of financing ranges from $50 000 to $300 000. We have had $10 mln agreements and agreements for smaller amounts.
"Credit Agricole - the best agrarian bank according to the business magazine" TOP-100. Ratings of the largest "and the magazine" Business"
“Zerno” magazine. What farms apply for the leasing service most often?
Yurii Vasylenko. With respect to the implemented agreements, that is medium farms mostly. There are applications from agro holdings, which we are currently processing. Needs of the business are very diverse. We have had requests for millions worth agreements from agro holdings, which we could not approve due to certain reasons, because we are meticulous about business reputation of potential customers. It is important to enter the market correctly and start financing activity correctly so as not to get a trouble affecting both the bank and customers.
“Zerno” magazine. What about the term?
Yurii Vasylenko. We offer financing for a term from one to five years with a down payment of 15% of asset value and more. The average term of agreement is 3 years with 25–30% down payment. The longest term we are currently have is 4 years. That is leasing of self-propelled machinery such as sprinkler systems and tractors.
“Zerno” magazine. What are the advantages of leasing from Credit Agricole specifically?
Yurii Vasylenko. We recommend that the customer choose machinery from the dealers with which the bank has partnership programs in place. By doing so, the customer will get more favorable terms of financing and feel immediate benefits from it. Now we have good partnership relations with leading manufacturers, and namely JOHN DEERE, CLAAS, BERTHOUD and their official dealers. Additionally, the bank offers the leasing of machinery from partners – well-known companies POLETECHNIKA (agricultural machinery and equipment) and WINNER (passenger and commercial cars). If the customer comes to the dealer by himself, he will get a standard price, and our joint offer with the dealer will enable him to get favorable rate for calculation of lease payments. And the other advantage is that we offer very attractive insurance tariffs. I would add that the leasing agreement is transparent, because we do not include any hidden fees or payments.
Alexandre Tchesnakoff. We know and understand agricultural business; we have a dedicated Agribusiness Department and even our own Agri School. We build on long-term relations with customers: a quarter of them have been with the bank for more than 10 years. The leasing service is what we lacked, so customers have to apply for it to other companies. Now they receive the whole set of services from us.
Yurii Vasylenko. It is beneficial to receive the whole range of services from us. Let’s say that a customer uses several services of the bank: he has salary project and receives Forex trading services. We can offer him favorable terms of leasing, too. Amount of lease payments certainly depends on the agreement’s provisions as well: the bigger amount of down payment and the shorter the agreement term are the more favorable terms will be. We provide financing in UAH at a fixed rate so the customer avoids FX fluctuations risk.
“Zerno” magazine. Leasing is hardly a very popular financial instrument in Ukraine. Why did you place your bets namely on it? Do you think this line of business will blossom out in our country any time soon?
Alexandre Tchesnakoff. We believe in leasing because we see that it works abroad and don’t see any convincing reasons that could prevent it from progressing here. In Ukraine, what prevents leasing from fast growing is stereotypical thinking, something like it’s better to own something rather than rent out. It is true for all segments of the market and the car market in particular, while in Europe, long-term lease is getting more and more popular. If you buy something, you have to make sure that you will use it constantly. If you own an asset, there are many things, which you have to take care of on your own: insurance, repair and maintenance. On the upside, proper leasing is the service. In case of leased machinery, you don’t have to spend time on its repair or maintenance, and can spend more time on sowing, growing, harvesting and distribution of products, etc. I believe that the leasing market in Ukraine will grow because of it. Will it be fast or slow, I don’t know, but we’ll see. Nevertheless, it will grow! The leasing service is attractive to the Bank, too, because we retain the title to the machinery throughout the agreement validity and can control all the aspects. That is why leasing is favorable for both our customers and us, and we see its great potential!
“Zerno” magazine. May the pandemic have any adverse impact on the development of the leasing services market?
Alexandre Tchesnakoff. The pandemic may have an impact on general willingness to renew the fleet, invest, on customers’ perception of the future, but I don’t believe it will significantly affect the share of leasing or lending. On top of that, crops that are grown in Ukraine are basic ones and their consumption is only increasing during the crisis.
“Zerno” magazine. In which other countries did your Group launch the leasing service?
Alexandre Tchesnakoff. Apart from France, in Poland, Italy, Serbia, and Armenia.
Yurii Vasylenko. I’d like to emphasize that we launch the leasing activity from the Bank’s balance sheet, but we are working on our own brand Credit Agricole Leasing. In France, there is a large company Credit Agricole Leasing & Factoring, which is a member of the Group and supported the launch of the service on the Ukrainian market. We can use its brand in Ukraine. So, we participate in many joint negotiations with vendors. We work under our own brand but under the same umbrella with Credit Agricole Leasing & Factoring and are very optimistic about the future.
Alexandre Tchesnakoff. We are the new player on the leasing market and eager to grow. We are young, but ambitious!
For the leasing terms and online application, please follow the link https://credit-agricole.ua/biznesu/leasing
