Drought pushes farmer debt lev­els to a mas­sive

CityPress - - Busi­ness - BLOOMBERG busi­ness@city­press.co.za

As the drought, caused by the low­est rain­fall on record, is with­er­ing mealie fields and dis­cour­ag­ing the plant­ing of crops across the coun­try, farm­ers are sit­ting with their high­est debt in his­tory with South African banks – more than R125 bil­lion.

FirstRand, Africa’s big­gest bank by value, had the largest pro­por­tion of to­tal loans (at 3.6%) ex­tended to agri­cul­ture among the four main lenders, Harry Botha of Av­ior Cap­i­tal Mar­kets said on Thurs­day.

Bar­clays Africa had 3.4%, Stan­dard Bank Group had 2% and Ned­bank Group 1%, said Botha.

“Dry con­di­tions would have an im­pact on prof­itabil­ity be­cause of lower yields, and for some pro­duc­ers it would be a to­tal crop fail­ure,” said Nico Groe­newald, head of agribusi­ness at Stan­dard Bank. “We ex­pect to see some pro­duc­ers un­der pres­sure.” The SA Weather Ser­vice said rain­fall last year was the poor­est since records be­gan in 1904. El Niño, a move­ment of warm wa­ter in the Pa­cific Ocean that typ­i­cally leads to a rise in tem­per­a­tures and a drop in rain­fall for South Africa, has left farm­ers with what’s ex­pected to be the small­est mealie crop since 1995. They will also prob­a­bly sow the small­est area with the grain since 2011, ac­cord­ing to the gov­ern­ment.

The strain on farm­ers’ fi­nances comes as banks, which have to­tal lend­ing ex­ceed­ing R3.29 tril­lion, con­tend with in­creas­ingly in­debted con­sumers. The strain on house­holds has wors­ened be­cause of ac­cel­er­at­ing in­fla­tion and ris­ing in­ter­est rates, caused partly by the more than 40% slump in the rand against the dol­lar since the start of last year.

FirstRand’s con­sumer unit, First Na­tional Bank, won’t nec­es­sar­ily de­crease lend­ing and tighten credit cri­te­ria for farm­ers this year, ac­cord­ing to Dawie Ma­ree, head of in­for­ma­tion and mar­ket­ing at FNB Busi­ness’ agri­cul­tural di­vi­sion.

“FNB has a well-di­ver­si­fied port­fo­lio of clients and is not over­ex­posed to the agri­cul­tural sec­tor,” he said.

Ned­bank, which said in Oc­to­ber it had lent R8.96 bil­lion to the in­dus­try, out of to­tal loans and ad­vances of al­most R649 bil­lion, “is con­cerned about the drought im­pact on the econ­omy, agri­cul­ture in­dus­try and so­ci­ety at large”, said John Hud­son, Ned­bank’s di­vi­sional man­ager for agri­cul­ture.

The “dev­as­tat­ing im­pact” of the drought “will place many agri­cul­tural pro­duc­ers un­der fi­nan­cial and cash flow pres­sure”, he said.

While the drought could lead to “ad­di­tional dis­tressed debt” for Stan­dard Bank, its lend­ing is di­ver­si­fied across a num­ber of agri­cul­tural in­dus­tries – from tim­ber to wine – that could cush­ion the ef­fect of any in­crease in bad debt among live­stock and grain farm­ers, Groe­newald said. The spread of Stan­dard Bank’s lend­ing book across in­dus­tries and coun­tries would also en­able it to ab­sorb any drought ef­fect, he said.

Adrian Cloete, a banks an­a­lyst at PSG Wealth, said: “The drought will have an im­pact on bad debt lev­els. Some farm­ers will prob­a­bly find it dif­fi­cult to fund their in­ter­est ser­vice costs as their in­come lev­els will be lower as less maize is planted.”

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