Farm banks prepared for declining ag markets, ABA report finds
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WASHINGTON, March 12, 2014 - A new report from the American Bankers Association (ABA) shows farm banks increased their agricultural lending in 2013 and are prepared to weather headwinds expected this year in commodity markets.
“Banks remain the most important source of ag credit, holding nearly half of all farm loans,” John Blanchfield, senior vice president and director of ABA's Center for Agricultural and Rural Banking, said in a release.
Agricultural lending increased by 9 percent in 2013, according to the report. At the end of the year, farm banks held $87.7 billion in loans, up from $80.4 billion in 2012 and $62.2 billion in 2009. Over 96 percent of farm banks were profitable last year, the report found.
The ABA warns, however, that though an expected decline in the agriculture economy will not damage farm banks, it could slow their growth. USDA forecast net farm cash income falling to $101.9 billion in 2014, down 22 percent from 2013's record profits.
“Farm banks have benefited from several years of strong agricultural sector performance and have, during these years, increased their quality and quantity of capital while strengthening their balance sheets,” ABA writes.
But “farm banks will struggle to generate higher future earnings.” The report says net interest margins will remain under pressure as top line revenue growth remains weak. Operating costs, too, will rise as farm banks struggle to comply “with a more onerous regulatory environment.”
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