Interview | Larysa Bondarieva, Board Member in charge of Corporate and SME Business in Credit Agricole Bank

Few years ago the banks were reluctant to lend to agricultural sector as they considered it to be a risky area. Today a growing number of financial organizations declare their interested in this segment and want to lend in agriculture. Though, so far they rather declare than really lend… What has changed?

In the recent years, especially after the crisis, AIC has become one of the most attractive economic sectors for lending: it makes an important part of GDP and exports. Having experienced the unsuccessful cooperation with property developers and other risky businesses, the banks turned their attention to agrarians. They used to lend in agricultural sector reluctantly being afraid of unpredictable risks related to weather conditions and poor harvest. In addition, the bankers themselves didn’t understand well enough what the agriculture is and how to work with it. Therefore, four years ago, when our bank in Ukraine started its activity in this sector, we faced the need in professionals understanding the agro-sector and knowing how to assess it, which risks it may contain and how to mitigate them. We invited the team of specialists in the field of crop farming and cattle breeding headed by Jean Jacque Herve - the expert with many years of work experience in France and Ukraine. Now his team works hand in hand with bank specialists on the analysis of business of agricultural companies applying to the bank for financing.

What is the volume of agrarians’ loan portfolio in your bank and what are the expectations for the year end? Is it lending to large or medium-size enterprises and of what kind of specialization?

At the beginning of the season – practically before the start of active financing this year – the loan portfolio of agricultural companies made UAH 1.5 billion. The most busy period is April – May. Last year we reached the point of UAH 2 billion.  I am sure it will not be less this year, even if talking about “primary” agriculture, not taking into consideration processing companies which we credit as well. We work both with SMEs and large Ukrainian and international corporations. In our portfolio there are companies with the land bank of 2-3 000 ha, and over 200 000 ha. We also actively develop partnership programs with agricultural products processing enterprises. Thus, under the terms of partnership program with DANONE, we provide financial support on favorable terms to DANONE milk suppliers. This kind of cooperation is profitable for all program participants: the bank gets a good borrower, processing company increases the supplies and the quality of products and milk producers can upgrade their main production capacities, enlarge the cattle stock, make the process more advanced and therefore, to increase the volume and quality of milk yield. In our portfolio there are also leading trading companies with perfect credit history and reputation. We are proud of this partnership.

Which banking products are the most popular nowadays?

First of all, these are seasonal funding and investment loans. One of the greatest problems of our agriculture is desperately out of date facilities, therefore the problem of modernization is more crucial than ever and a growing number of 3-5 year loans are granted for purchase of combine harvesters and other agricultural machinery. Another constant problem which leads to the loss of the great part of the crop yield is the lack of storage capacities. For such clients there are special offers on financing the grain terminal construction. Few years ago we signed the partnership agreement with Karlovskyi machine-building plant under which we offer the market interesting conditions on financing the purchase of this plant’s production.

The cost of financing nowadays is very high and not everyone can afford the loans at the price of 20%. What can the bank offer as an alternative?

Indeed, taking into consideration the financial problems the agrarians usually face, the access to financing, its price and lack of sufficient security are major problems. In autumn the rates were 22-23% per annum. Today the situation is improving. We expect that by the mid season the banks’ rates will not be higher than 20%, we use any opportunity to lower it. But so far the price of “direct” finance remains high and we offer our clients to use such instruments as letters of guarantees, avalized bills and discounted letters of credit. These banking products reduce the financial loading for enterprise as they are cheaper than loans. We are interested in development of this type of finance as we understand its advantages for the agricultural producers. As an example, we can mention signing of agreement with International Finance Corporation (IFC) on risk sharing within the framework of joint program with Bayer. The year of its implementation showed that there is a demand for such programs on the market: at the beginning of the season the company gets the opportunity to purchase the crop protection agents of a high quality instead of financing this important component of production residually. Efficiency of this program was also proved by the interest of producers and distributors of other agricultural brands.

Few years ago we heard that CREDIT AGRICOLE financed the best students’ education in agricultural universities…

Lack of skilled personnel is another essential factor which influences the development of this sector. Though there are a lot of universities, graduates of practical agricultural specializations are in deficit. CREDIT AGRICOLE supports the educational program in agricultural universities of Vinnytsia, Kherson and Poltava.

What is the NPL level on agro-loans in your bank and which prevention measures do you take?

Our agricultural portfolio is very healthy. There were just few problematic situations, but they were of the force majeure nature. At the same time, the approach of the bank to credit scoring has almost not changed: our credit risk policy was initially well weighted and fully proved to be reliable. Yes, we ask a lot of questions. No sector of economy can be credited at random: you must understand operating and technological cycle, purpose of the loan, the expected economical effect, and repayment source. And of course, a very important factor for us is a spotless reputation of the borrower and his credit history.

What is the future bank strategy with agricultural sector?

For the bank it is an undoubted priority. Now the share of agro loans in our portfolio makes 30%. In the nearest future we are planning to increase it up to 40%. To achieve our goals, we apply in Ukraine the experience of the French CREDIT AGRICOLE BANK established by cooperatives in France in the 19th century to support the agriculture. Support of agribusiness in the countries of CREDIT AGRICOLE Group presence is the main element of its strategy, including Ukraine with its agricultural potential. We also actively cooperate with representatives of the related industries such as processing of agricultural products, food production, wholesale and retail trade, trading, transportation and logistics, packaging production etc. This is our niche and if we know how to fund the agriculture and related industries, we should concentrate on it. This will be our best contribution to economic development of the country.