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Small agricultural companies will become more attractive for banks

01 April 2021

Magazine “TOP-100. Ratings of the Largest” April 2021

Small agricultural companies will become more attractive for banks

Larysa Bondarieva, Deputy Chairman of the Management Board of Credit Agricole Bank tells how the banking industry is preparing for the opening of the land market

Some experts compare the opening of the land market in its scale with privatization in the 90s. But how correct is this comparison?

I do remember privatization in the 90s. It seems to me that society and business were less prepared for the privatization at the time than for the current land reform. Today the level of information engagement of business and society in the process of preparing and implementing economic transformations is, of course, higher. Therefore, they are better prepared for the reform. However, it is very difficult to compare, because that society is too different from the existing one. Anyway, the fact is that the opening of the land market will soon become a significant event for the whole of Ukraine, and first of all, for the agricultural business. I believe that over the past 20 years, Ukrainian society has matured to perceive the “land project” as quite realistic. I remember that even 2-3 years ago the agrarians, who owned 5-15 thousand hectares of land, admitted to me that they were prepared – both mentally and financially – for the lifting of the moratorium on free buying and selling of agricultural land. It seems to me that the idea of the emergence of a land market in our country in the near future has already taken root in the minds of Ukrainian agrarians. It seems to me that the idea of the emergence of a land market in Ukraine in the nearest future has already taken root in the minds of Ukrainian farmers.

 

How soon can the market be formed?

According to the adopted model, the land market in Ukraine will develop in an evolutionary way. At first, it will open only for individuals, and from 2024 – for legal entities. Moreover, the current owners will sell their land very cautiously. In the first phase, according to sentiments and expectations, people driven by life situations will be the first to enter the market. The rest will hold back waiting for higher prices. Buyers, for their part, will not buy land at inflated prices either. Finding a balancing point will take some time. After all, at first, there will be few people willing to sell– only about 5-10% of the land bank, according to preliminary estimates. The hesitant start is likely to last for a few years after the entry into force of the land market law.         

 

What changes will the opening of the land market bring to the banking industry?

Land is a good and liquid asset. An asset like that will persuade banks into lending. Apart from that, banks will be more willing to engage in dialogue with customers from small and medium businesses. I am quite confident that the small business segment will become more attractive to bankers. For me, this is a positive change. We will create a new, highly attractive customer segment. First, we will lay the foundation in the form of lending services for small agricultural companies with good collateral – land. Then, we will offer such companies add-ons such as seasonal financing, ranging from the purchase of seeds or plant protection products to the sale of crops. Investment programs will also appear to increase capacities for storing and processing crops, and for the development of irrigation systems. There is already interest in such financing. But I would not expect a miracle to happen tomorrow.

 

Can small agricultural enterprises count on such financing from banks literally from 2024?

Ukraine will not come immediately to financing serious investment projects of small agricultural companies. I think this will become a reality in a few years after the opening of the land market. Now we need to take into account who exactly forms the main added value in agriculture. The fact is that 64% of the grain crops is harvested by 9% of companies working with a large land bank, 1000 hectares and more. That is the reality of today's Ukrainian agricultural market. Until 2024, balances and pivot points will be sought. Next thing, the arrival of legal entities can give rise to further development of the market. Thousands of small businesses with strengthened access to finance represent a huge market potential.

 

Which new banking products might become available? What does your bank intend to offer for the opening of the land market?

Today, all banks that work closely with agriculture are already finalizing preparations for the opening of the land market. Our bank works on a new product and, of course, plans to enter the market with it. We discuss it in dialogue with our customers. Our bank intends to finance not only existing clients, but also new clients from the agricultural industry, and help them in every way. Credit Agricole Bank currently serves 3,000 agricultural companies, and they can definitely rely on us. We also have many individual clients who can potentially become landowners and who can apply to us for loan to purchase land. Furthermore, many companies from among our customers are interested in the bank to support individuals if they acquire land with its subsequent lease out to the company. As soon as the land market opens up for legal entities, we will certainly be there, too. The bank will support both customer segments.

 

What strategy can banks follow after the land market opens?

Several typical situations in the land market are simulated. According to one of them, individuals who are not engaged in agriculture see land simply as an investment asset. In the second option, farmers intend to buy land to expand the existing land bank, that is, to ensure the growth of their agricultural business. Finally, the third model assumes that individuals who already own land and have leased it out to legal entities will wish to increase their land bank in order to lease out new land plots, as a rule, to the same legal entity. I think that the banking market will primarily look at the third type of potential clients. Beyond that, I expect that the second segment represented by farmers will also get into the focus of bankers.

 

What examples of successful implementation of land reform in other countries can you give to Ukrainians?

If we talk about the countries of presence of the Group, i.e. France, Italy, Poland and other, the market has always been open there, and land ownership is not new for them. A kind of analogy can be drawn with the Serbian market. With the  liberalization of the land market, many small clients appeared there and caught the interest of banks. All of this had a positive effect on the development of the market and the economy as a whole. Serbian banks used the opportunity and started to expand the range of services to such customers. Serbia's positive experience allows us to see options for the development of market in Ukraine.

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