Finance

Several years ago commercial banks in Lithuania did not trust farmers. The conviction that agriculture was the most risky branch of economy prevailed; therefore it was not worth paying attention to. Statistics, however, show that the amount of loans granted to Lithuania’s agriculture is rapidly increasing. Soft credits being granted contribute to that. Banks started to compete fiercely for clients-farmers because agriculture has suffered least from the crisis.

Banks tempt clients with lots of privileges

There are nine commercial banks in Lithuania and seven branches of foreign banks; five representations of foreign banks, Central and 67 credit unions operate on cooperative basis. Though banks do not publicise what part of their clients is related to agriculture, there is no doubt that DnB NORD bank has the largest amount of funds of farmers deposited with it. This is partly determined by the tradition and take-over of the network of clients of the former Lietuvos Žemės ūkio bankas (Agricultural Bank of Lithuania) (privatised in 2002). Also, SEB and Swedbank have granted a large part of loans. It is not only banks that actively lend to agriculture but also credit unions, which are scattered all over the province of Lithuania.

The survey conducted by the Bank of Lithuania last October shows that at the present time the commercial banks of the country assess the agricultural sector best. Financial analysts came to the conclusion that agriculture was most resistant to the crisis. Thus, bankers started tempting farmers with soft credits, lower interest rates, different financial products intended for them. Prior to the economic crisis banks easily extended dwelling loans, largely financed small and medium-sized business, therefore farmers were left aside – the return was too small. However, when loans began to get stuck during the crisis, respites started to increase en mass, and at the same time losses increased (during the year 2009 over LTL 3 billion losses was incurred on commercial banks operating in Lithuania) the banks turned their attention to the farmers. It was agriculture alone that was growing last year, and, for example, trade in agricultural equipment increased as if the state lived in good times.

It is recognised that the financial standing is good

According to the data of the Bank of Lithuania, the financial standing of about 70 per cent of agricultural companies is good, and that of 30 per cent of companies is medium. At the present time there are no branches of economy, which would be a great success, but the situation of almost 80 per cent of agrarian companies is rather stable, and the number of companies that are going close to bankruptcy is smallest as compared with other sectors of economy. President of the Association of Lithuanian Banks Stasys Kropas is especially optimistic about the future of the agricultural sector. “In Lithuania, after the crisis agriculture should find itself among the winners. I think that the crisis will change the attitude that prevails in Europe and Lithuania that agriculture “creates” a low value added”, spoke Stasys Kropas. In the opinion of the President of the Association of Lithuanian Banks Stasys Kropas, it is the crisis that might become the stimulus for investing more in agro business. The crisis encouraged the states to provide their markets with agricultural production grown and produced in their own countries, therefore unavoidably much more attention would be devoted to it”, Stasys Kropas spoke optimistically.

The Fund gives guarantees

The Director of the Agricultural Loan Guarantee Fund Danguolė Čukauskienė spoke that it was especially pleasant that despite economic difficulties, rural population did not give up and took loans from the banks. Since the beginning of its activities the Lithuanian Agricultural Loan Guarantee Fund has issued credit unions guarantees of LTL 2 billion for LTL 2.5 billion credits that they have issued.

In 2009, the Fund gave guarantees of LTL 49,2 million for the credits amounting to LTL 80,3 million extended to farmers, rural business people and processors of agricultural products. The average size of credits taken by farmers and rural business people amounted to LTL 410 thousand during the said year, and the amount of guarantees given for them totalled LTL 250 thousand.

In the year 2009 the largest number of credits with guarantees was issued by SEB bank (28 per cent of all credits with guarantees), DnB NORD bank (26 per cent) and Swedbank (20 per cent).

As in earlier years, it was farmers from Kaunas, Šiauliai and Panevėžys districts who borrowed from credit institutions with guarantees most heavily.

The sack of soft credits has been untied

When the financial crisis started, many Lithuanian farmers found themselves at the crossroads: though investment assistance from the European Union is still being allocated, many of them found it too difficult to obtain loans and put their share into the project due to the increased interest rate. However, in the autumn last year a new possibility was raised for Lithuania farmers to obtain new loans. Lithuania established the Loan Fund through which it will be possible to obtain much cheaper funds. The first agreements with banks have already been signed. “Lithuania’s economy lacks fresh blood and we are going to pour it at least into the agricultural sector”, said the Minister of Agriculture Kazys Starkevičius. According to him, it was seen at the beginning of the past year already that many investment projects of the farmers were getting stuck; therefore it was necessary to take measures. “The Ministry of Agriculture of the Republic of Lithuania undertook the initiative to help farmers and processors who wanted to receive the European Union assistance to develop investment projects, however, due to the financial crisis were not able to obtain loans from banks or they were extended with very high interest rate. Therefore we appealed to the European Commission asking it to permit us to apply the so-called measures of financial engineering – assistance by means of loans with favourable interest rates”, explained the Minister of Agriculture Kazys Starkevičius. According to the Chancellor of the Ministry of Agriculture Ms Dalia Miniataitė, Brussels always understands the reasoned and motivated talk only. “We presented enough arguments why Lithuania needs such a mechanism, and we were understood. All the more so, that we felt support for other European states, for example, Germany, which had considered the possibility to create a similar financing mechanism before”.

Only those farmers have the right to financial their contribution to the investment project with the soft loans who have already submitted applications to obtain the European Union assistance. However, at the same time, farmers who do not seek for investment assistance can make use of these credits too. A total of LTL 450 million has been allocated from the Lithuanian Rural Development Programme 2007-2013 and the state budget. The budgetary funds must constitute one the fourth of these loans.

Eight banks gave their consent

Nine banks operating in Lithuania laid claims to take part in the distribution of the funds but after one of the banks withdrew, eight of them were left: DnB Nord, Medicinos, „Parex“, SEB, Snoras, Swedbank, Šiaulių and Ūkio banks.

According to the Vice-Minister of the Ministry of Agriculture Aušrys Macijauskas, the greater number of banks participate in this project, the better it is for the farmers themselves – they will not have to transfer their money from one bank to another.

According to the first Vice-President of Snoras bank Naglis Stancikas, whether all the funds intended for soft loans will be applied will depend on the activity of the farmers themselves. “We have quite a lot of clients who are engaged in agriculture, so we think that there are many good and far-reaching projects. And these loans are especially useful because of the small margin of the interest rate. Of course, together with a small margin the banks shall assume risk too: we shall work as mediators, we shall help to implement the farmers’ ideas”, said Naglis Stancikas. According to him, the bank does not expect to derive big profit from this project but every client is important to it, all the more so that perspectives of agriculture are considered to be really good even during hard times.

Banks of Lithuanian capital are the most flexible

Some of the county’s commercial banks started to try to draw farmers independently. Banks of Lithuanian capital began to offer especially favourable conditions to the farmers.

For example, Ūkio bankas, when improving crediting conditions in Lithuania, extends soft loans to the farmers. The bank has already taken decisions on granting more than LTL 1,5 million loans to the country’s population engaged in agriculture. “Funds are being allocated to investments rather than to turnover. Therefore this offer is really worth attention of the people working in the sphere of agriculture – the amount being lent is large, one can start up a serious business with it. The interest rate for farmers is lower than the general one, and the term of paying back the loan enables business to gain full speed and earn money. Hence, this loan programme becomes great support to the farmers in developing their present and new businesses”, thinks the Head of Ūkio bankas Credit Division Mindaugas Pašvenskas. According to him, agricultural business is the only branch of economy, which at the present time is regarded as having best prospects therefore banks finance this sphere quite willingly. Farmers and companies can borrow from EUR 3 000 to 10,000,000 from Ūkio bankas or the equivalent amount in Litas. The maximum duration of the loan is seven years, whereas for a dairy cooperative societies – it is up to 10 years. The interest rate offered to the farmers on loans in Euros accounts for 4-6 per cent, the interest rate on loans in Litas is 5-10 per cent. Funds are being lent to modernise agricultural holdings, that is, to acquire new and modern equipment, technology, the building and reconstruction of industrial premises, that is, to the objects, which would facilitate the farmers’ work and increase their labour productivity. Šiaulių bankas also credits farmers under especially favourable conditions. According to the tender results publicised at the end of summer of 2009, Šiaulių bankas offered the most favourable conditions by granting the farmers the possibility to obtain the loan at the interest rate that is lower than that of the market. “The sector of the agricultural activity is another sphere in which the bank will have the possibility to extend credits with a favourable interest rate and the bank margin. Cooperation between the bank and farmers will enable individual farmers and companies to intensify the development of agriculture and make the economic situation easier. We are waiting for the farmers and expect that the credits obtained will become a strong stimulus for them to realise their investment plans, and the bank will have the possibility to further broaden its experience of crediting agriculture”, said the Deputy Head of the Board of Šiaulių bankas Donatas Savickas.

Unions paved the way for banks

Specialists on agricultural finances are convinced that credit unions raised clients for commercial banks. Or perhaps visa versa – brought commercial banks closer to agriculture. Last year, when there was a period of calm in the financial market, the number of deposits with the credit unions increased markedly. In 2009, the number of deposits increased by as much as 25.04 per cent and totalled LTL 714,113 million. Last year both natural persons and legal entities assessed the possibilities to borrow much more cautiously, however, the loan portfolio fell by as little as 1.27 per cent in the credit unions and totalled LTL 553,2 million. It would be illogical to compare this with the results of commercial banks. By the way, it was not easy for the credit unions themselves to work their way in Lithuania until they became recognised financial institutions. Lithuanian credit unions began their activities at a really unfavourable time because people had not forgotten the fall of the so-called financial pyramids yet, the scandalous bankrupt of the EBSW Holding Company, which robbed the country of over LTL 80 million. Furthermore, two bank leaders fell: LAIB and Litimpeks. Thus, people’s trust in commercial structures was lost. Most probably this was the reason why the representatives of the Bank of Lithuania did not believe that the credit unions, which functioned successfully in Canada, France, Germany and other countries, would take root in Lithuania too. However, none of the credit unions has gone bankrupt yet. The first credit unions in Lithuania were established by farmers and other individuals related to agriculture.