Oireachtas Committee on Agriculture, Food and the Marine
Tuesday, May 9th 2017
Opening Statement by AIB – Dr. Anne Finnegan, Head of Agriculture Sector
Chairman and Members of the Committee, my colleagues and I are pleased to have the opportunity today to provide
the Oireachtas – and the Irish public – with an update on AIB’s ongoing support for the Agriculture sector, in
particular, our participation in the SBCI Agriculture Cashflow Support Loan Scheme. My name is Anne Finnegan,
Head of Agriculture Sector with AIB and joining me today are:
•
Ken Burke, Head of Group Credit Products
•
Catherine Moroney, Head of Business Banking
As you are all aware, 2016 was a challenging year on a number of fronts for Irish agriculture. Most sectors
experienced a price related downturn while others fared better.
However, the UK’s decision to exit the EU, and the rise of protectionism across key global markets, has now signalled
a new era for trade that will undoubtedly impact agricultural commodities. AIB is acutely aware of the ongoing
challenges facing the Irish Agri-food sector. In particular, we are very aware of the potential significant impact of
Brexit on the sector and the anxiety that this is causing processors, food manufacturers and farmers. However, it is
generally accepted that the meat sectors, most especially beef, cheddar manufacturers and consumer foods
including SME food businesses will see the greatest impact. While our Treasury teams continue to support the
sector, at all levels in the bank: Corporate, Business Centre, Branch and Direct we are working with customers to
understand the implications for their business and how best we can support them. To that end, we have just
appointed 21 Brexit Advisors who will support our customers and indeed frontline staff in navigating the challenges
and opportunities posed by Brexit. As price takers, farmers have no influence on external events that may impact
the price they receive. Rather, their only option is to look inside the farm gate and seek to make their enterprise as
efficient and resilient as possible. In livestock sectors, grass utilisation is key in this regard and AIB has committed a
substantial investment over four years in the Teagasc-led Grass10 initiative which seeks to increase grass utilisation
and essentially cost efficiency on livestock farms. AIB is committed to playing its part in the concerted national effort
to minimise the negative impact of the UK’s decision.
AIB has a long and enduring association with the Irish Agri-food sector. The bank is now the main lender to Irish
Farmers and AIB accounts for more than 40% of total Irish farm lending. We are all aware how critical Agriculture is
to the economy - to jobs, individuals, families, communities and to the broader Irish society. It is a core part of our
SME strategy, cemented in the 1970’s with the establishment of an Agri Advisory team. Today, this experienced 16strong Agri-sector team, all Agricultural Science graduates, is regionally based. The role of the team is primarily to
provide objective farm financial and technical analysis to the bank in individual farming cases. In addition, they
1
provide ongoing training to our wider frontline staff ensuring that they are equipped to support farmers through the
fullness of the farming cycle.
In general, aggregate farm debt in Ireland continues to decline from the peak of 2009. However, we have seen
strong demand for new lending in recent years, as farmers invest in their enterprises. The dairy sector continues to
be a key driver of on-farm investment and in recent years, the beef sector has also invested significantly. Our
analysis of market predictions from the main forecasting agencies indicates that the medium term outlook for global
agricultural commodities remains positive. On this basis, AIB maintains a good long term outlook for the agriculture
while recognising that challenges exist in each of the production areas. In fact, agriculture has experienced
comparatively lower levels of credit difficulties than other SME sectors. AIB is very happy to support ongoing
investment in the industry.
Despite the challenging price environment experienced by most farmers in 2016, AIB’s new lending to farmers
increased marginally on 2015 levels. There was no significant increased demand for working capital in 2016 and
indeed overdraft utilisation levels at the end of March 2017 were on par with the same period in 2016 and 2015.
Notwithstanding the buoyant cash flow position of the sector last year, AIB undertook the following supports
specifically in relation to cashflow:
•
Proactive contact with dairy and pig farmers
•
Proactive contact with the main dairy processors in relation to farmer support
•
Agri Advisor presentations on cash flow planning at over 30 industry seminars
•
Publication of customer information on farm cash flow management
According to the ‘AIB Agri Financial Services Research’ of July 2016 undertaken by Ipsos MRBI, almost 40% of farmers
have no bank borrowings. In addition, our research suggests that 4 out of 10 farmers plan to invest in the next three
years; this is higher among dairy and commercial farmers.
To support those farmers that do have a requirement for bank funding, AIB has a range of products, bespoke and
general SME, to support farmers’ needs. In November 2015, we launched our second €500 million fund to support
on-farm capital investment and working capital.
Farmers use a variety of mechanisms to manage working capital, including bank funding and merchant credit.
Depending on the nature of the enterprise and the working capital cycle, AIB has a number of options available
including a business overdraft, seasonal stocking loans, Promptpay and the Farmer Credit Line. A farmer may avail of
one or all of these in combination to support his or her working capital. AIB’s Farmer Credit Line is a unique product
which seeks to provide a flexible approach to managing farm working capital. For planned seasonal expenses,
farmers can drawdown funds from a Credit Line to their current account and have flexibility to repay within the year
2
as they have funds available. This product is competitively priced and farmers may currently avail of a typical rate of
3.825% 1 variable.
AIB has a range of options to support capital investment on-farm. Farmers can avail of our on-farm capital
investment loan which is priced at 5.5% (variable), a 1% discount to our Standard Variable Business Loan Rate. Aside
from the cash flow support scheme, AIB is the leading on lender of SBCI SME funding, having availed of €400 million
to date. This was made available at a rate of 4.5% (variable), a 2% discount to our Standard Business Variable Rate
and can be used to finance most on-farm capital investment. Farmers have been keen to avail of these funds,
accounting for 27% of the total AIB draw downs in 2016 and Q1 2017. In addition, we also offer asset finance to
support investment in machinery and equipment. As with all SME investment, the term of the loan is typically linked
to the useable life of the asset.
Following the announcement by Minister Creed of the plan to introduce a €150 million Agri Cash Flow Support Loan
Scheme, AIB engaged with the SBCI to participate on the basis of a €60 million loan fund. Given the tight timelines
from announcement to expected launch of the fund, we applied significant resources to our participation in this
scheme and to developing a product which would enable our customers to avail of this funding as efficiently as
possible. The scheme features and eligibility criteria were set out by the Strategic Banking Corporation of Ireland.
The key loan features of this scheme were:
•
A maximum loan amount of €150,000 per farm enterprise
•
Loan terms of minimum 1 year up to a maximum of 6 years
•
Loans that are unsecured
•
Optional interest only repayments provided at the start of the loans
•
An Interest Rate of 2.95% fixed for the term of the loan.
The SBCI also set out key criteria relating to how loans should be used, who can apply as well as eligibility criteria. As
with all similar schemes in which AIB participated, normal lending terms and conditions applied.
Having previous experience of administering SME funding from National and European funding agencies, we
anticipated some complex elements in this scheme. As such, we supported the launch both internally and externally
with significant resources to help our staff, our customers and their advisors to fully understand the details of the
scheme. Following the launch of the scheme we hosted 30 external briefing sessions, across our 19 local markets for
Stakeholders including Accountants, Teagasc Advisors, Agricultural Consultants and Farming Organisations to brief
the scheme details.
Given that this scheme was first announced in early October 2016, we envisaged significant pent-up demand. AIB’s
fund opened on 31st January and it closed on 2nd March following a strong pipeline of applications. We are currently
processing all outstanding applications as full information is received from customers. When all applications are
completed, the fund will have been oversubscribed. AIB has taken the decision to accept all applications received by
1
Rate correct at 05/05/17
3
the closing date at the same rate of 2.95% (fixed) and subject to the same terms and conditions as the SBCI cash flow
support loan.
As of last Thursday 4th May, 62% of our applications have been processed and sanctioned and the funds are now
available, or have already been drawn down by the customer. The dairy and beef sectors account for the majority
of the applications and funds sanctioned. However, all sectors benefited from the scheme. Of those loans that are
fully processed, 72% of funds have a term of greater than four years, 23% have a term of 13 months to four years
while 5% have a term of one year.
AIB has been pleased to have the SBCI cash flow support loan as a component of our suite of financial supports for
farmers in 2017. We reiterate that farming remains a core business sector for AIB. AIB has always maintained a
through-the-cycle view of the Agri sector, recognising that there will be a mix of good and bad years. As a leading
bank to the industry, we will continue to play a key supporting role in the development of an efficient and
sustainable agriculture industry in Ireland.
On behalf of the Bank, I want to again express thanks to you for inviting us here today. We very much appreciate the
opportunity to discuss with you this key SME sector.
Thank you and we welcome your questions.
4