The Law № 2178-10 “On Amendments to Certain Legislative Acts of Ukraine Concerning the Conditions of Circulation of Agricultural Land” adopted by the Verkhovna Rada of Ukraine provides for the presence of banks on the market. In particular, banks have the right to issue loans secured by land and then sell it if the debtor does not repay. The start of bank lending underground is expected from January 1, 2024. Why and what rates to expect? What will be the price of land pledged by banks? And what will happen to lending to the agricultural sector in 2020? Olena Korobkova, Executive Director of the Independent Association of Banks of Ukraine, told AgroPolit.com about this .
If we talk about the volume of the agricultural loan portfolio, it has decreased less compared to loans from other sectors of the economy.
AgroPolit.com: What is the current situation with lending to the agricultural sector by banks?
Olena Korobkova: If you look at the statistics for 2019 , for all types of business lending, the volume decreased by 13% , for the agricultural sector – by 9%. Сказати, що статистика погана, все ж таки не можна. Чому так сталося? Темпи нового кредитування не встигають за темпами погашення старих кредитів. Коло корпоративних позичальників у нас дуже обмежене і не збільшується. Агрохолдинги давно закредитовані, банки більше фокусуються на кредитуванні малого та середнього бізнесу. Але цей сегмент не надто помітний за обсягами. Якщо банк видав сотню нових кредитів фермерам, а водночас отримав погашення кредиту від великого агрохолдингу, загальна сума візуально не збільшиться, а може, навіть і зменшиться. Наступний фактор – торішнє зміцнення гривні з’їло основну частину валютних кредитів, а вони в нас у статистиці відображаються у гривні. Якщо говорити про обсяг портфеля агрокредитів, то він скоротився менше, у порівнянні з кредитами решти секторів економіки.
Agricultural business for banks is the most interesting. Because now this is the business that continues to work.
AgroPolit.com: Has the situation with quarantine lending changed?
Olena Korobkova: Now the agricultural sector, like banks, is one of the strategic objects of the state, and clients of the agro-industrial complex are attractive for banks. That’s why we continue to lend to business. Not as much as they did before the quarantine, but we continue to work with clients and attract new ones. In the current environment, it is difficult to make forecasts until the end of 2020 on lending volumes and rates, it depends on how long the epidemic will last. However, the banks have certain plans: plan A – if active life begins to resume on June 1 , plan B – if the quarantine continues until the end of the summer. These are completely different scenarios that are radically different from each other.
Consultations are underway to expand the state program “Affordable Loans 5-7-9% “ , when the state compensates the entrepreneur part of the credit burden. It is proposed to create such conditions so that it can be used by small companies, not only new businesses. We have to wait for the final version, which will be approved.
We had a meeting with the NBU and banks, banks issue loans, make concessions. If you need restructuring – listen to customers, conduct it. The main thing is dialogue. Now there are not so many clients. Because if there is farming, a normal agrarian business, with a clear business strategy, then you need to go to the banks and take loans – the banks will gladly give them. Agricultural business for banks is the most interesting. Because now this is the business that continues to work. These are not restaurants that need to be repurposed and takeaway. Banks that have been on the market for a long time have their own agronomists who specialize in lending to farmers and continue to advise farmers.
The most convenient pledge – for fertilizers and equipment
AgroPolit.com: What is the most liquid deposit for banks from farmers today?
Olena Korobkova: Now it is much easier and clearer for us when we lend for fertilizers or equipment. It is more difficult to lend on the security of goods in circulation or for the harvest. Banks consider each case separately and find a solution. Today there is a struggle for good customers. Therefore, one financial institution will compete with another for such.
For banks, the main 2 factors that determine the direct interest rate: the first – that the client could provide reporting, and whether there is collateral. If the equipment is pledged – this is understandable. Watch how it is depreciated, serviced. If there are reports and there is something to pledge, loans are given with pleasure. It is clear that the better the collateral and reporting, the lower the interest rate. The program “Affordable loans 5-7-9% ” is already working. There are banks that are already 100 loans were provided by such as Ukrgasbank, Privatbank and Oschadbank. Many commercial banks are currently trying to join the program. Last year, we did not choose the money that was given to compensate for past programs. Now all the reasons why this happened have been analyzed, the identified shortcomings have been eliminated. Experience shows that this program “Affordable loans 5-7-9% ” works very well.
If we talk about the forecasts until the end of 2020, we hope that up to 20-30% of the banks’ portfolio will be the agricultural sector.
AgroPolit.com: What interest rates should be expected for loans in hryvnia and dollars?
Elena Korobkova: The discount rate of the NBU is reduced, respectively, banks are also reducing interest rates on loans. Additional decisions on discount rates are planned to be made at a meeting of the NBU committee. In addition, if an expanded list of those who can participate in the Affordable Loans 5-7-9% program is included , good conditions for the hryvnia are expected. If not – the range of interest rates, depending on the bank, type of loan, etc., will range from 12-15% and 22-27% . If we talk about the forecasts until the end of 2020 , we hope that up to 20-30% of the banks’ portfolio will be the agricultural sector. In addition, in 2019 year there was a review of the concentration of customers and areas, now the situation is also gradually changing. Today we are deciding how to transfer banks to remote customer service. We are looking for ways to ensure that customers do not come to the bank, and contact remotely. However, the law stipulates that the first to issue a loan should be a visit to a financial institution. There are a lot of questions. However, if we now solve some of them, and the final quarantine is predicted, it will be possible to predict the work of the banking system in more detail.
We do not expect in the next two years the demand for loans secured by land. Most likely, the demand will be extremely small.
AgroPolit.com: Will banks lend to farmers from July 1, 2021? How will their credit appetites change after the admission of legal entities to the market from January 1, 2024?
Olena Korobkova: After the adoption of the law № 2178-10 on the land market by the parliament , which is to open the market from July 2021 , the bankers are calm about the first stage. The reason for this is the restriction, which stipulates that until 2024 it is allowed to buy agricultural land only for individuals and only up to 100 hectares. Therefore, agricultural producers, which form the basis of the sector, will not apply for land loans from the summer of next year, as they will not yet have access to the market. Therefore, we do not expect demand for land loans in the next two years. Most likely, the demand will be extremely small. At the stage of preparation, banks plan to conduct surveys to 2024 understand how much land they plan to buy and what will be the demand for loans, study pricing policy to predict future interest rates. In addition to forecasting, together with the NBU we will develop mechanisms that would protect against abuse and make customers’ access to information about the land bank and offers greater. But all this is closer to 2024 , when there will be a demand for banking programs.
AgroPolit.com: How do you expect the pace of lending to small agricultural producers to change from July 1, 2021, when the free land market for individuals starts?
Elena Korobkova: They will not change for us yet. Because until 2024 , only individuals are allowed to buy agricultural land, only up to 100 hectares. This means that agricultural producers, who form the basis of the sector, will not have access to this market. Therefore, they will not need loans to purchase this land as collateral. Second, demand for land will be extremely limited and unpredictable. Therefore, banks will not be able to count on the sale of this land. The use of land as collateral will be possible, but for the bank it will rather be an additional psychological tool for negotiating with debtors, but will not be seen as a loan repayment in case of problems.
When the law on the land market becomes fully operational in 2024, then we expect that the basic rates on land loans may be reduced by 2-3%.
AgroPolit.com: Have you determined the volume of the expected land mortgage for 2021-2024 and its potential from the point of view of banks, given that the land will be collateral and the likely reduction of interest rates on loans?
Olena Korobkova: It is too early to talk about the numbers, because we will not be able to take them as collateral. According to forecasts, when the law on the land market will be fully operational in 2024 and banks will be able to take agricultural land as collateral in normal amounts, then we expect that the basic interest rates on land loans will be reduced by 2-3% . Entering the market of the seller and the buyer will not significantly affect the rate. If it is, their appearance will be small, so it will not change the weather. That is, real lending for the purchase of land can be expected from 2024 .
AgroPolit.com: Do you already have forecasts of the banking system, how many applications from individuals for the purchase of land may be received in the first two years?
Olena Korobkova: We will conduct a survey of small and medium-sized businesses and the population about their potential and what they will need. One of the questions is whether they will need money to buy land. Now no analyst has conducted such a study, because we now consider the land more as a technical pledge. There will be no significant impact or large volume.
From July 2021, we have two main factors that prevent us from lending. The first is the lack of reporting, the second is the property that can be pledged to us… The adopted law on the land market does not encourage an increase in the share of lending to the agricultural sector when land is pledged.
AgroPolit.com: How do you assess the final version of the adopted law on the land market №2178-10, given that there is a section on banks?
Olena Korobkova: The draft law №2178-10 had restrictions on banks, and we submitted amendments through deputies. They were explained why this should be done to remove restrictions for banks. Because if companies can’t pledge us, we won’t be able to lower interest rates on loans, so we won’t be able to take pledges. This is a vicious circle that cannot be broken. From July 2021 , we have two main factors that prevent us from lending. The first is the lack of reporting, the second is the property that can be pledged to us. The adopted law does not affect either the first factor or the second. Therefore, for us from July 2021 year absolutely nothing changes. There will be isolated cases when a client will take a loan and, in addition to his guarantors and deposits, will provide land as collateral. This may be widespread from 2024 , when the land market will be fully opened. The adopted law on the land market does not stimulate an increase in the share of lending to the agricultural sector, when land is collateral, does not stimulate an increase in lending programs. But agriculture is our prerogative. They are good clients for us, of course. We cooperate with them and will continue to cooperate. If we take land as collateral from 2021 , we will not be able to sell it, there will be no full value of the land. From 2024 year, you can more or less look at the cost, interest, then banks will offer more programs.
AgroPolit.com: That is, the possibility provided by law to take land as collateral is not a winning horse for you?
Elena Korobkova: We are not interested in how creditors take this land as collateral, because we do not specialize in it. We have many questions about the mortgage that we had to take on the bank’s balance sheet and deal with its implementation. For us it is not a profile business, we are not so professional in it. It is much easier to predict, to have a serviced loan, and not to take this land as collateral. How we will behave – each bank, as experience shows, has its own implementation mechanism. In state-owned banks through SETAM, through Prozorro.Sales do it, commercial banks do it themselves, some also involve SETAM and Prozorro.Sales. If there are banks that sell problem loans with a portfolio and resell them to companies, then the companies are already engaged. It is much easier for us not to take this land. As experience with apartments shows, we do not always get the money we gave.From each problem $ 1 we refund 7 cents, taking into account the cost of vessels, collectors, etc. Therefore, it is unprofitable for us. It is much more convenient, if the loan will be serviced, to make concessions to the client.
AgroPolit.com: Is there a need to create a site where all the land received by the pledged banks will be collected, but these loans have not been repaid?
Olena Korobkova: From the point of view of a potential buyer, if there is a site where all the land that can be bought is collected, it will be much easier than communicating with one of the 75 banks. Because there is a plot in one place or another, if you can combine them and buy not 200 , but even more hectares, it will be much easier and more comfortable, and sales will be higher. Depends on how it will be organized. If like SETAM or Prozorro – this is a normal idea. At first we had a lot of questions about how to lower prices, how to raise and so on. But these are the issues that we worked out, drove away, now they work fine. If there is a more detailed project of such a site, we will discuss, give our conclusions and recommendations, but in general the idea is acceptable.
Lending to communities underground
AgroPolit.com: Is the community interesting as a potential client for the bank? Under the law, communities can only lease or cultivate land themselves, and in the long run, will banks lend to communities that are gradually becoming landowners?
Olena Korobkova: Now no one has approached us with such proposals, I don’t even remember a bank lending to the community. If there is a demand for such a service, I think that banks will introduce it. The main thing is that this can be done at the legislative level and that there is demand. It is clear that no one will make a mass product for one community, but there will be demand – there will be supply.
AgroPolit.com: The law stipulates that the buyer should not be included in the group of risks – that is, not to be a citizen of the Russian Federation, not to have foreigners or foreigners involved in it, etc. How should the procedure be implemented and in which acts is it prescribed so that there are no abuses, which structure should act as a safeguard?
Olena Korobkova: For us, only the NBU is the only national regulator. And now a group has been set up to work on regulations for this law. Such issues have not been resolved yet, there is no mechanism yet, but it is being discussed. The bank assumes the risks on its own, so the banks must have people to look at and evaluate, or there must be some certificates or extracts that it is land that can be bought or that is not pledged. But we will learn this all together and gradually.
Natalia Bilousova, Oksana Tupalska AgroPolit.com