Farming sector potential not enough for banks

The banks see agriculture as a high-risk sector compared to other fields they direct their cash to, which is actually the main reason why little financing actually reaches the sector, a survey of the National Bank of Romania shows.

Although it is the third most important economy branch in terms of gross added value share in the GDP, after services and industry, the agriculture, or the companies operating in this field to be precise, has (have) trouble getting loans from commercial banks.

“This is due to factors related to the economic environment and stability nationwide, and to specific factors such as the delays in the privatisation and sectorial restructuring process, the risk of calamities and the financial impossibility to conclude insurance contracts, the low number of financial institutions through which the Rural funding project is now carried out and last but not least the lack of banking expertise in assessing the specific risks of this activity,” the above-mentioned report reads.

The survey of the central bank’s specialists covers the June 30, 2000-December 31, 2002 period and is based on the data supplied by six banks – Banca Comerciala Romana (Romanian Commercial Bank – BCR), BRD, Banca Transilvania, Banca Romaneasca and Citibank Romania. These are actually the banks most exposed to this segment.

The total credits granted for the farming sector amounted to a mere 2,680bn ROL at the end of last year, accounting for only 1.6% in the total domestic lending.

The volume of loans granted by the six banks throughout the period considered did not follow a constant trend, in the sense that it was 5% lower in December 2001 compared to the same time in 2000 and was 19.6% higher in December 2002 compared with December 2001.

The main factors that contributed to the decline in the volume of agricultural credits were the low efficiency and productivity in the farming sector, the reform delay, as well as the little involvement of the State in the unfavourable circumstantial situations. Another factor to have made a negative impact on the farming loan trend was the abrogation of the legislation allowing farmers to get credits at a state-subsidised interest.