In December, the National Bank released the final “Financial Stability Report” for 2017. The banking system regulator provided encouraging estimates to the agro-industrial complex in Ukraine and focused the attention of financial market subjects on the most attractive branches of the agro-industrial complex, according to its version. According to the head of the department “OTP Agro-factory” (part of “OTP Bank”) Ivan Yerko, commercial banks share the optimism of the NBU, but only some of them consider the agrarian sector as a priority. And they have their own vision of the prospects of interaction between the agrarian sector and the banks.

In its report on financial stability, the National Bank identified two main theses for agrarians: 1) the agrarian sector is the most profitable sector of the economy of Ukraine; 2) agricultural companies display the smallest share of problem loans. In fact, for bankers, this means: “Lend to farmers, because this is the least risky sector of the Ukrainian economy!”. At the same time, the NBU notes that agricultural producers are practically fully equipped with working capital. It is worth adding that this is merit not only of banks, but also of distributors and suppliers who finance farmers by providing them with commodity loans.

Начальник відділу «ОТП Агро-фабрика» Іван Єрко

The National Bank also notes that agrarians are in need of medium- and long-term credit resources for upgrading equipment, building warehouses and elevators. In turn, Ukrainian banks have already developed and launched a large number of special programs aimed at satisfying this demand, this is leasing and investment financing. In the coming years, the demand for such funding will only increase. Therefore, bankers are now actively simplifying procedures and optimizing processes in order to become more accessible to clients. In particular, OTP Bank, in conjunction with IFC, has developed and launched a simplified and accelerated procedure for funding producers of cereals and oilseeds, in March 2017. Thus, a company with a land bank of 500 hectares may receive a preliminary decision on financing for 1 day, and receive the credit funds within 9 business days. The client can count on the amount from 2 to 8 million UAH., While only the future harvest can be transferred to the deposit.

The key to commercial banks from the NBU is the recommendation to finance livestock farming. At the moment, Ukrainian banks view working with this sector of agriculture with caution, as the pig farms have problems because of African plague, and milk producers have problems because of lower demand for products and losses in the Russian market. But the changes that took place at the macro level suggest that this industry will actively develop in the near future, restoring the lost positions of recent years. Of the main positive signals, it should be noted the opening the EU market for livestock farmers, rising prices for dairy products and the permission to supply frozen pork to China. Therefore, from banks it is necessary to expect more loyal approaches when approving limits for livestock owners.

 The key to commercial banks from the NBU is the recommendation to finance livestock farming

The National Bank also recommends paying attention to mills and grain processing enterprises, as the profitability of these areas has recently increased. Commercial banks are already financing these types of clients, although these deals are selective.

Debt burden and EBITDA

Source: NBU (regulator focuses on debt / EBITDA <6 and EBITDAmargin = 10-30%)

Active development of agriculture has a positive effect on related industries, which supply their products to agricultural producers. Thus, the NBU recommends paying attention to machine builders and construction companies that produce elevator equipment and build warehouses. Indeed, agro companies are still in need of grain storage facilities, and those capacities that are available require upgrades.

In general, the NBU’s report is positive about the financing of agricultural producers. This positivity is shared by commercial banks, for which the agrarian sector is already a priority. However, there are not many such banks yet, and in order to unlock the full potential of agriculture in Ukraine, more involvement in the financing of all banks without exception is required.