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How banks support and stimulate the Ukrainian agrarian sector

10 December 2020

Liga.net December 2020

Ukraine is a breadbasket of Europe, the largest supplier of sunflower oil in the world, and an active player in the global grain market.

3 million Ukrainians are occupied in the agrarian sector that generates 13-15% of the GDP. At the same time, agrarians face more challenges than others: weather-related risks and natural disasters aggravate those unexpected crises that affect the economy in general.

Who and how can support and stimulate the development of the Ukrainian agro-sector? Obviously, government programs are not sufficient. We asked the Head of Agribusiness Support Department of Credit Agricole Bank Natalia Porvina what commercial sector offers and whether the agrarians can expect any support from banking institutions.

-Agrarians like to say that agro is trendy, and according to the name of your financial institution, you are in the trend. Please tell us why 10 years ago Credit Agricole Bank decided to focus on this particular business area.

-Historically, our Group works with the agrarian sector, knows this business, understands this business, and we have strong expertise in the agribusiness. Indeed, more than 10 years ago we chose this strategy while the majority of financial institutions were cautious about it. Unpredictable weather conditions, currency fluctuations, impact of global prices on the prices for agricultural products affected and keep affecting the business of agro-companies. If you don’t know how the business operates, and peculiarities of its operational cycle, it is difficult to project future cash flows of its companies, to assess and mitigate the risks. The experience of the Group in working with agro-sector and existence of the agro-expert team comprising specialists with agrarian and veterinarian background allowed us to be among the first banks that focused on supporting and developing the agribusiness.

Agro became a strategic vector for our bank, and now we can see that this strategy was a good choice. Agribusiness is developing actively. New distribution markets are being opened. Agrarians improve their performance from one year to another, they implement and use new technologies, acquire the best international practices of business management. According to the research of the agro-sector that has been carried out by our analysis since 2000, we can see that the structure of sowing areas changed, the yields increased, productivity and general performance improved. Such progress evidences that the agribusiness will keep developing, there is still a room for growth.

-What is the share of agrarian clients in the total loan portfolio of Credit Agricole Ukraine?

-The share of the agro-sector, including processing companies, represents about 50% in the corporate loan portfolio. The number of agrarian clients of the bank grows year on year.

-Has anything changed in the culture of cooperation between Ukrainian agrarians and financial institution in pandemic crisis conditions? Was the demand for banking products affected?

-If we address the situation of the coronavirus, the agrarian sector, same as banks, operated in the normal course during the lockdown. The start of the epidemic overlapped with the spring sowing campaign when agrarians needed finance to perform their field works. The pandemic did not affect the demand of agricultural producers for lending products. Sowing campaign was active in all Ukrainian regions, and we observed no reduction in the number of requests from business. To the contrary, there was some growth. The highest demand, same as in the previous years, was for working capital loans. Agrarian enterprises purchased seeds, crop protection agents, and fertilizers. Alternative finance tools such as bill avalization were rather popular as well. We also observed the need in the investment finance.

-What banking instruments other than loans are popular with the agrarians?

-Besides lending, the agrarian business uses trade finance instruments: promissory notes, guarantees, letters of credit. Their advantage for agrarian enterprises is that they allow them to reduce the cost of funding substantially.

The popularity of agrarian receipts grows year on year. At the initial stage few years ago, this product was operationally costly, there were difficulties with execution of receipts as not all notaries could do it, and therefore, the cost of agrarian receipt execution was rather high. Now we record the increasing demand for this product in the market, more and more receipts are issued every year.

Among the instruments that gained popularity with Ukrainian agrarians in the recent years, we want to note leasing. This year, our bank completed its product range with this product and thus, expanded agricultural machinery purchase opportunities for our clients.

Today, agrarian enterprises rely on comprehensive serving by banks that covers all their needs. Our objective is to be a partner bank for clients by enhancing the interaction of all links in the value added chain. By analyzing particular needs of each customer, we adapt our products, and improve their terms and conditions as well as our processes in order to make them as comfortable as possible for the clients and to satisfy their needs to the biggest extent.

Watch the video "Ukrainian Agricultural Potential" by Credit Agricole

-Does current autumn sowing campaign differ from the last year one in terms of demand for banking instruments?

-It is a common knowledge that in most Ukrainian regions, agrarians faced the problem of draught that resulted in lower yields. However, prices of grain and oil crops grew significantly in this season and therefore, the losses of volumes could be partially compensated by growing prices. Agrarian companies in Western Ukraine received both good yield and good price. Thus, we do not expect that the demand for lending products will change a great deal. Nevertheless, each particular case should be considered separately given the situation of a specific enterprise and its funding needs.

-What amount of funds are you talking about?

-We work with all segments of agribusiness: small, medium, and large companies. The overall amount of the agribusiness loan portfolio is about UAH 13 billion.

-There is a dedicated team in the bank that analyzes each area of agribusiness, and performance of each particular company. Does your team have agro-technicians and vets who understand the matter?

-Yes, we have a team of agro-experts with specialized background: agronomy, veterinary. When we get a finance request, we study agrarian indicators of the company, analyze business technologies, market trends, and their impact on business of the company. Expertise is one of the bank’s strengths. From communication with our specialists, customers realize that the bank understands specifics and peculiarities of agrarian production, and understands their business. Analyzing activities of the customer, agro-experts can give advice on improvement of business performance and share their experience of risk mitigation in the operational management. Customers appreciate when the bank speaks their language.

Agro-experts of the bank also train and share knowledge with colleagues from other units of the bank who deal with agro-clients. In 2018, we launched our unique project “Agro School” with the main objective to teach bank employees to think, analyze and plan in the agrarian way. By expanding agro-expertise and deepening knowledge of bank professionals in the sphere of agribusiness, we want to boost the level of customer service. In the course of training, our employees learn all cycles of agricultural production not only in theory but also in practice, and acquire the experience from the best agro-market experts. This year, the project was recognized as the “The Best Leader Development Program” within the HR Brand Ukraine Award 2020.

-What are the mandatory qualities for a potential customer of your bank?

-First and foremost, the reputation. If the company has a good reputation, we give it the greenlight. Openness and transparency of the company are equally important. This is a basic precondition for trust and an opportunity to build effective and mutually beneficial relations. Our potential customer is a customer with good reputation, transparent and structured business model, professional management, and performing business. We give priority to clients oriented to long-term business development.

-Is there a limit of a land bank or a livestock?

-A couple of years ago, we financed customers that processed at least 400 hectares of land, now it is 200 hectares, and we expect further reduction. In my opinion, the segment of farmers with up to 500 hectares of land is the least funded. Agrarians of this segment are used to work mainly with their own funds, and only recently, their interest to raising funds began to grow. Small entities become more perceptible for bankers, their performance indicators improve year on year, same as their financial management and future cash flow forecasting.

-If everything progresses well, there will be a land market in Ukraine next year. What will be the impact on the banking system and on lending?

-Banks consider this situation, and they will be ready to provide loans for purchase of land to the agrarian sector. We established a working group to develop a high-quality product dedicated to land purchase finance. The level of lending growth and participation of banks in the process will depend on how active the market is, on demand and funding needs. So far, the analysts do not foresee purchase and sale of large areas of land at the initial stage of land market operation. And the pricing is still in progress. Therefore, I think that the growth of demand for the new lending product will be organic.

-To finalize our conversation, what is your advice to your potential agrarian customers?

-Agrarians became more adaptive, they learnt a lot from crises they had faced over the recent years, and they effectively use this experience in their work. I wish they could maintain this adaptivity, the ability to adjust their businesses to new realities, since in the rapidly changing world this quality becomes priceless for keeping and improving the performance in such a strategic industry as agro.

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