Banks not worried about defaults – yet

by Shelton on December 10th, 2015

filed under Debt Consolidation

REUTERS
The logos of three of South Africas four biggest banks – Absa, Standard Bank and First National Bank – adorn buildings in Cape Town. Picture: Mike Hutchings

Johannesburg – South African banks are not worried about the possible defaults by farmers on loan repayments as a result of the drought.

At least three of the country’s big four banks said while the effect of the drought could impact on loan repayments, their books remained healthy and were diversified enough to allow farmers to increase gearing levels slightly.

The head of information at First National Bank (FNB) business agriculture, Dawie Maree, said the bank remained hopeful that the worsening drought situation could still be averted with rain in the coming months, which would make farmers able to honour their debt obligations.

Maree said the bank would extend its credit extension to most farmers.

Our through-the-cycle credit extension policy will enable us to assist most of our farming clients despite one or two below average seasons, Maree said.

We have been involved in agriculture for longer than 175 years, have invested substantially in both the primary and secondary agriculture sectors and will continue to do so within the current regulatory credit environment.

Catastrophe

The drought, the worst in more than two decades, has forced farmers to hold back on crop production and to sell livestock in order to avoid a catastrophe.

Yesterday, KwaZulu-Natal water authorities tightened their restrictions on water usage in the province, prompting fears that sugar cane farmers, who are already reeling from the drought, could be faced with even more problems as the planting season gets into full swing in most parts of the country.

Grain SA estimates that crop farmers will suffer more than R12 billion in losses during the current financial year, while breeders also estimate that profits in the livestock sector will go down by billions of rand.

Standard Bank said it might have to deal with an increase in bad debts from farmers as crop production was expected to fall due to the drought.

Standard Bank’s head of agribusiness, Nico Groenewald, said profit margins could come under pressure‚ making it difficult for some farmers to repay loans.

Early indications in the overall agricultural sector show that the areas that farmers intend to plant has shrunk by about 4 percent because of adverse weather conditions, Groenewald said.

Unless it rained soon‚ this area would shrink further.

Loan options

Agri SA, the lobby group that represents most commercial farmers in the country, has met with the banks to discuss farmers’ loan repayment options as the drought hit their crops and livestock.

Agri SA executive director Omri van Zyl said they wanted agricultural financiers to assist farmers to survive the drought through debt consolidation.

Scenarios are increasingly pointing to a situation where significant imports of maize, as staple food crop, will become necessary, as well as the provision of fodder for breeding herds of livestock to be maintained, Van Zyl said.

Absa said it would keep lending taps open for farmers as growers could use high crop prices to offset lower output.

Absa’s head of agribusiness, Ernst Janovsky, said the bank was not concerned as yet, as the severity of the drought could be felt in months to come.

He said less than 0.2 percent of farmers had defaulted on their loan repayments and there was still enough money to survive the drought.

We haven’t closed any taps, Janovsky said. There is no real problem up to now, but if substantial rains do not fall by March next year we could have serious problems.

Maree said FNB remained optimistic about the financial well-being of its farming clients.

He said the bank was still hopeful that the drought could be broken as almost 80 percent of maize farmers in Mpumalanga had already started planting, while the North West and western parts of the Free State still had time to plant.

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