Amid fears that the nation’s ongoing recession may result in more defaults in other industries, the two major South Africa-based banks, Absa Group and Nedbank Group, are stepping up disbursing loans to farmers – reported Bloomberg. The data from Statistics South Africa revealed that while the nations’s economy contracted 2.8% in Q2 2009, agriculture grew 5.4%.
Louis von Zeuner, deputy chief executive officer and head of retail operations at Johannesburg-based Absa, said: “Farming tends to outperform other economic sectors during a recession with excellent repay ability and low impairments. Loans to the agricultural industry accounted for as much as 7% of Absa’s first-half earnings, up from 3% a year earlier. Farmers are also a good bet for repaying loans because they benefit from “sticky” food prices during the recession as consumers would rather pare luxury spending than switch food preferences.”
It has been reported that the Johannesburg-based Nedbank’s loans to the agricultural lending market increased 32% to $490 million in June, and it plans to further increase its share. Jan Meintjes, a portfolio manager and director at Gryphon Asset Management in Cape Town, said: “Not all industries go through good and bad times at the same time. Agriculture is an important part of the economy. There are good opportunities for the banks to make money through providing finance and transactional revenue. The most important issue here is diversification for the banks; they need to be exposed to a wide variety of industries. Agriculture is doing relatively well in the current recession,” reported the news agency.
