Speaking at an AIB agri-business breakfast briefing primarily attended by accountants and agri-finance experts in the Rochestown Park Hotel, Cork, agricultural consultant Jonathan Anthony of Anthony & Associates in Cork, said that Ireland’s pillar banks should offer farmers and SMEs a seven-year loan with interest-only repayments for the first three or four years.
Mr Anthony said: “Banks need to be more imaginative in how they structure loan facilities, especially for dairy farmers looking to expand. With bio-security being such an issue, people want to breed from within their own stock rather than risk importing any diseases.
“As a result, farmers will be retaining stock instead of selling them for the next two or three years. Their income will be down because of this. So, for the next few years, they will need interest-only repayments for that stock. Then, after a few years, they can move to repayments of both interest and capital.
“Another model would be a phased draw-down of the loan, depending on when they start expanding. While it undoubtedly has many positives, expansion should come with a Government health warning. I’m in this business for 30 years and people have always underestimated the cost of expansion.”
AIB Cork agri-business adviser Tadhg Buckley said that the bank is happy to consider a loan facility with an interest-only kick-start. The bank is looking at this and other proposals from discussions with its agri-food and SME customers, such as queries on the fixed rates on bridging loans.
He said that many dairy farmers are already increasing their replacement stock, adding that the bank realises that this drive will not provide any income return in terms of heifer sales until 2015 with the end of EU milk quota restraints.
Mr Buckley said: “We realise that we need to look at a more imaginative approach to lending. We can see that the agri sector has been hugely successful and has ambitious expansion plans, and we are working closely with the sector.”
Mr Buckley also advised farmers to include accounts for 2011 rather than 2010 in applying for bank loans, and to make themselves aware of the new regulatory oversight under which the banks are operating. For larger farmers seeking bigger loans, enlisting a financial adviser would probably be a good idea.
AIB has trained 120 people to act as relationship managers for agri-food and SME clients. This service is intended to be more personal, with each of these advisers dealing with one-sixth of the number of clients being dealt with by general advisers.
The bank has also launched a €250m Agri Investment Fund, with €100m for on-farm capital investment, €100m for working capital, and €50m for asset finance.
In response to feedback from farmers, AIB has stretched its farm development repayment period from 15 years up to 20 years; and its farm credit line is now at a 4.4% variable rate, notably cheaper than an overdraft facility.
AIB has nine regions nationally. One of these is Cork Central, whose manager John O’Doherty has noted a 12% year-on-year increase in the purchases of tractors and other farm machinery.
Another sign of farm buoyancy is the reduction in farm debt held by the bank — down to €4.2bn in 2012 from €5.2bn in 2009, primarily due to farmers opting to reduce their debt levels on foot of increased incomes.
AIB has €2.8bn in lendings with customers in Cork, an agri stronghold for the bank. Nationally, 15% of the bank’s balance sheet is with agri and forestry customers; the figure is higher in Cork. In 2011, the bank injected €72m into Cork, with 54% of new loan applications sanctioned.
John O’Doherty said: “AIB has met its lending commitments since being recapitalised by the state. We will also meet our €3.5bn lending target for 2012. We see ourselves as a community bank, with a remit to support the local customer.
“Farmers and SMEs form an integral part of that community,” he said.
“There are very few farmers among the ‘grey’ profile — a term we use for ‘high risk’ business loan and mortgage applicants. Where there are any problems accessing loans, customers are invited to invest in the appeals process, which the Credit Review Office has shown is proven to work.”
AIB has also launched a suite of new loans and other services targeting new entrant farmers.
The bank is also publishing a regular periodical, entitled Agri Matters, tailored for the farming and food sector.