AgroCredit loans provide great risk-adjusted returns

AgroCredit Latvia is a non-bank lender which specializes in the agricultural sector. 

To Mintos investors, AgroCredit offers agricultural loans with a 6% interest rate. This is a relatively high rate to provide great risk-adjusted returns (the sector of operations is in a low-risk, secure loan segment and the company is the sector leader in the country). At the same time, such returns are reasonable enough to provide a sufficient gross margin for AgroCredit given their APR and the fact that they offer buyback guarantees with all their loans. 

Currently, the total AgroCredit portfolio consists of: 

– seasonal financing (offered to Mintos investors) (contributes to 65% of the portfolio)

– collateralized loans (25%)

– machinery leasing (10%) 

The average annual interest rate offered by AgroCredit to its clients is 12%, which is comparatively low for the non-banking sector but ensures the attraction of high-standard customer base and low credit risk.

During nine years of operation, the company has financed more than EUR 50 million to several hundreds of farmers. The credit policy of AgroCredit is very conservative for the non-bank lending sector and it has resulted in high standard portfolio ratios and credit losses level on average below 0.5% of the portfolio. The profile of an average borrower is a company with a total landmass of 150 ha and an average loan size of EUR 40 000.

Since the beginning of the activities in 2011, AgroCredit has been growing its total financing volumes constantly and it’s expected to achieve EUR 10 million portfolio by the end of this year. The interest income and profitability has grown as well and the 2018 audited financial statements show a net profit of more than EUR 200 000 (29% NP margin). The company has grown in 2019 which will be seen in the 2019 audited financial statements available in April.

The main type of financing offered by AgroCredit is seasonal financing for grain growing farmers, which is based on future grain delivery contracts. The purpose of the loan is to finance the working capital needs of the farmers – buying fertilizers, seeds, chemicals, fuel, machinery repairs, etc. The repayment of the loan is withheld from the purchase price for the grains delivered to the grain trader (AgroCredit partner) according to strict grain delivery contracts. This is a major risk-minimizing factor as AgroCredit loan is well secured and senior to all other creditors of the borrower. The financing limits are set conservatively and close to seeding volumes of the farmer’s crop foreseeing that the liabilities can also be met in poor-yield years. Normally, the limit is set no higher than 50% of the average expected yield. Therefore, the average expected cash-flow (the collateral of the loan) exceeds the loan amount more than twice.

The availability for credit resources has dropped in Latvia due to the current issues of the banking sector – after the credit crisis in 2009-2011 the climate changed and actions by the regulator along with recent AML issues have made banks reluctant to finance additional customers in this segment. That has resulted in higher demand for credit products, which were historically offered by the banks – mortgage loans, machinery leasing, and so on. To serve this demand, AgroCredit is actively offering more of this type of financing in order to increase the number of customers and widen its product range.

Click here to view AgroCredit’s loans on the Primary Market.


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