SA’s First National Bank plays down agri debt concerns

Agribusinesses in South Africa have reached their highest historical debt levels, but a major lender's head of agriculture information said treating the sector as cyclical was key.

First National Bank, the biggest holder of agri debt in South Africa with its owner FirstRand bank, has told Agri Investor that it is not seriously concerned about growing debt levels amongst agribusinesses in South Africa. It played down worries that drought could damage the country’s agriculture industry and said they it could restructure debt for affected businesses.

Agribusinesses in South Africa have reached their highest historical debt levels, with farmers now owing 125 billion rand ($7.5 billion; €6.9 billion) to South African banks and facing average debt levels of 46 percent, according to the First National Bank’s head of agriculture information Dawie Maree.

FirstRand has extended 3.6 percent of the overall agriculture industry debt, the largest proportion among the country’s four main lenders. Barclays Africa Group has extended 3.4 percent of loans, while Standard Bank Group and Nedbank Group  provided 2 and 1 percent respectively, according to reports.

Maree told Agri Investor: “Over the last couple of years we have seen a substantial increase in farming debt. It’s not over-extended or above normal though.”

Higher risk and a resulting rise in interest rates, with the bank’s current prime interest rate standing at 6.25 percent, was mainly due to falling exchange rates, he said. The bank increased its interest rates in December by 25 basis points, and expects interest rates to the agricultural sector to rise by about 1 percent over the course of the year.

“Obviously those farmers do not only have debt, they also have investments as well, with the commercial banks. There are concerns that could be warranted about rising levels of bad debts if the production season doesn’t turn out favourable, but we will only know that in July and August, when those repayments must be made.”

Maree added that the bank would try to assist farmers who did face problems repaying their debt this year:

“We look at all those farmers and ask them to come and speak your bank as soon as possible, and to assist you before the problem starts.

“We would rather look at an agribusiness through a good and a bad cycle. We look at the climate and production forecast and we see how we could restructure outstanding debt, such as perhaps a capital moratorium over a two year period to assist them through a bad cycle, and obviously we will look at their balance sheets and where we can assist them more.”

Maree said that some businesses, such as the fruit and poultry industries, could face hard times after a dispute that threatened South Africa’s trade privileges under the US African Growth and Opportunities Act (Agoa), as well as because of drought.

More positively, he added: “Our export of prime cuts to the Middle and Far East have increased dramatically over the past year. So that is one advantage that we have and that is one of the industries that is growing as well.”

“We have a very balanced book and are not over exposed in terms of area of sub-sectors within the agricultural sector.”

A Barclays Africa spokesman also commented: “We provide lending to players across the agricultural value chain, including input suppliers, primary producers as well as secondary producers and manufacturers. We are proactively managing our book and we will continue to do so in the context of the ongoing drought.”

The bank contacted Agri Investor to say they are currently the largest provider of loans to agribusinesses in South Africa, although they could not provide specific financial figures because they are in a closed period, a spokesperson said.