Bankers have revealed that feared farm cash flow problems didn’t materialise this year.
AIB, which claims to be the main lender, with more than 40% of total Irish farm lending, has reported no significant increased demand for working capital in 2016, and overdraft utilisation levels at the end of March 2017 on par with the same period in 2016 and 2015.
At Bank of Ireland, which claims more than half of all new lending to the agriculture sector in recent years, the average farm overdraft utilisation in 2016 was 21%.
“I believe this is an excellent measure of the financial robustness of the sector as a whole,” said the Bank of Ireland’s head of agriculture, John Fitzgerald, during last week’s Joint Oireachtas Agriculture Committee on debate on the Agriculture Cashflow Support Loan Scheme.
“Allowing for seasonal variation, there has been no material change in agriculture cash flow performance so far this year,” said Mr Fitzgerald.
It was the threat of cash flow difficulties for farmers that led Agriculture Minister Michael Creed to introduce the Agriculture Cashflow Support Loan Scheme in co-operation with the Strategic Banking Corporation of Ireland, making €150 million available to farmers at an interest rate of 2.95%.
The threat didn’t materialise; nevertheless, the two main banks and Ulster Bank, which distributed the €150m loan package, encountered very strong demand for the loans. “Demand for loans has exceeded all of our expectations,” said John Fitzgerald of Bank of Ireland.
“ We estimate that more than 2,100 loans will be drawn by our customers under the scheme.”
He noted that the 2.95% interest rate in the €150m scheme for unsecured loans compares with Bank of Ireland’s normal unsecured agri rate of 6.75%.
Aib’s Head Of Agriculture, Dr Anne Finnegan, revealed the bank took the decision to accept all applications received by the closing date the SBCI cash flow support loan scheme at the same rate of 2.95% fixed and subject to the same terms and conditions.
The bank’s head of group credit products, Ken Burke, confirmed in the Oireachtas debate that they catered for some customers beyond the terms of the €60m of the €150m fund to which AIB had subscribed.
“We did not want customers to be disadvantaged because the shutters had come down on the scheme after a short time. We have honoured these commitments.”
AIB’s share of the fund opened on January 31 and closed on March 2 following a strong pipeline of applications.
Ulster Bank was allocated €25m of the SBCI agricultural cash flow support loan scheme, and senior agricultural manager Dr Ailish Byrne anticipates that 500 of their customers will benefit from the scheme.
She said most of the funds were allocated to assist with working capital in 2017, as an alternative to merchant credit.
A small number of applications were declined by Ulster Bank owing to the farm business being in financial difficulty or because the purpose of the loan did not meet the scheme eligibility criteria.
The loan scheme is designed to be cost neutral for the banks handling it.