Rabobank Closes U.S. Farm Credit Gap As Big Banks Pull Out

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As major US banks including JPMorgan Chase and Capital One slowly exit the farm lending industry, US-based Rabo AgriFinance plans to take over.

The agricultural loan portfolios of the country’s 30 largest banks fell 17.5 percent, or $ 3.9 billion, to $ 18.3 billion between their peak in December 2015 and March 2019, a recent Reuters report find.

But for Rabo AgriFinance, which focuses solely on agricultural loans, business grew 7% over the same period, Curt Hudnutt, the company’s executive vice president, told Banking Dive.

“The big banks have never played a significant role, in my opinion, in agricultural lending, even when they have had exposures,” he said, referring to the tendency of the big banks to reduce their loans. agricultural portfolios.

Hudnutt said Rabo AgriFinance, a subsidiary of Dutch multinational banking and financial services firm Rabobank, has around $ 15 billion in loans outstanding.

“Outside the Netherlands, we only focus on food and agri-food. So we know and believe that we have to be in this space in good times and in bad times, ”said Hudnutt. “We are active in the space and when things are not going so well for our customers and prospects, to be honest we are even more active because we believe that we can provide solutions to the right producers to help them overcome the problem. slow-down. . “

Declining cash flow and the escalating trade war between the United States and China are leading some farmers to retire early and others to declare bankruptcy, according to the Reuters report.

Total U.S. farm debt is expected to reach $ 426.7 billion this year, according to the US Department of Agriculture, approaching the levels observed during the agricultural crisis of the 1980s.

“Right now we’re in an agricultural recession, and it’s been happening for about five years now,” Hudnutt said. Hudnutt, whose parent company Rabobank is privately owned, declined to share Rabo AgriFinance’s default rate, but said it was generally in line with the market.

“So we’re going to be in the 1.5% to 2% range, usually at the bottom or the top of cycles and below 1% when things are going well,” Hudnutt said.

To manage the risk associated with servicing the agriculture industry, Hudnutt said the company relies heavily on its analysts.

“There are a lot of risks in any commodity-based business,” he said. “We have 90 around the world who focus solely on agriculture and write about agriculture, economics, and the study of agriculture.”

Hudnutt said Rabo AgriFinance’s financial knowledge networks are a critical aspect of the company’s value proposition.

“We’re looking at how we connect our growers here in the United States, either with other growers across the country, or globally in the other regions in which we operate. We’re looking for growers who focus on what’s going on from a global market perspective and how does that impact this business here? And we’re looking for someone who’s looking for more than just the cheapest loan, but who’s really looking to build a long-term, multi-generational relationship, ”he said.

Hudnutt said another key to managing risk is to study the marketing plans and the marketing direction of the producer.

“The quality of financial information is really a key factor. As they need to access more capital per transaction, what is their sophistication in the financial field? ” he said.

Hudnutt said the company is also looking for borrowers who are good stewards of the land, with long-term sustainability practices in place.

“I expect that until the outlook for agriculture improves, [larger banks] will continue to reduce their exposure to agriculture, ”said Hudnutt. “But I think that between the farm credit system and ourselves, we are in a good position to hire good quality producers who are no longer financed by the big banks.”

The Agricultural credit system, a network of 73 customer-owned financial institutions that provide loans and financial services to U.S. agribusiness companies, provided $ 15.5 billion in new loans to farmers and ranchers in 2018, according to data from its website .

“The big banks have always been going back and forth. When things are going well, they are in it. When things are bad, they are out. They can do it because they have other places to put their money, ”Hudnutt said. “We think the American farmer is leading in this space and we think this is a great growth opportunity for Rabobank.”



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