1 risk management in agricultural financing crédit agricole: a leading partner to an ever-changing...
TRANSCRIPT
1
Risk management in agricultural financing
Crédit Agricole: a leading partner to an ever-changing world
Jean Luc PERRONManaging Director
Grameen Crédit Agricole Microfinance FoundationApril 2009 – Johannesburg
2
1. Introduction to Crédit Agricole Group2. Key features and figures of France’s farming
sector3. The risk approach of Crédit Agricole4. An accelerated and integrated solution for the
financing of farm machinery: the AGILOR solution5. Crédit Agricole’s agricultural insurance services:
crop insurance6. Crédit Agricole’s soft commodities hedging
services7. Crédit Agricole’s risk policy and monitoring
methodology
Risk management in agricultural financing
Crédit Agricole: a leading partner to an ever-changing world
3
1. Introduction to Crédit Agricole Group1.1. Crédit Agricole’s organisation
Joint-stock companyNon for profit organisation
Regional banks (39)Regional banks (39)
Legal cooperative structure
PresidentPresident
Local Banks (2573)
General General managermanager
Branches(7.000)
Branches(7.000)
Members(6 million)
Members(6 million)
Clients(20 million)
Clients(20 million)
FNCA (Fédération Nationale du Crédit
Agricole)
FNCA (Fédération Nationale du Crédit
Agricole)Crédit Agricole S.A.Crédit Agricole S.A.
Banking structure
PresidentPresident ManagerManager
SAS La BoétieHolding Company
SAS La BoétieHolding Company
4
1. Introduction to Crédit Agricole Group1.2. Key figures
French leader in retail banking … No.1 banking network in France with 9,089 branches under two
brand names (CA & LCL)
26 million retail banking customers
1.4 million business customers (independent professionals, companies and local authorities)
No.1 in France with a 28 % market share in personal banking
No. 1 in France in the financing of the farmers: 80 % market share
… with global reach Present in more than 70 countries
161,800 employees worldwide
5 million retail banking customers outside France
2,400 branches outside France
5
1. Introduction to Crédit Agricole Group1.3. International retail banking
Minority holdings
* Regional Banks’ majority holding
** Directed by Calyon
*** Including an acquisition of 14.66% finalized in February 2008
A significant international presence
Ukraine: Index Bank232 branches159,000 private customers3,300 staff
Serbia: Meridian Bank104 branches179,000 customers930 staff
Greece: Emporiki Group375 branches1.5 million customers6,700 staff
Saudi Arabia: BSF**62 branches
Poland: Lukas Bank151 branches362,000 customers1,940 staff
Switzerland: CA Financements*5 branches
Uruguay: Credit Uruguay Banco35 branches139,000 customers430 staff
Belgium: CA/Landbouwkrediet* 274 branches400,000 customers1,680 staff
Morocco: Crédit du Maroc170 branches560,000 customers1,820 staff
Italy: Cariparma, FriulAdria677 branches1.4 million customers7,100 staff
Spain: Bankoa*46 branches278 staff
Djibouti: Banque Indosuez Mer Rouge
Armenia: ACBA17 branches146,000 customers422 staff
Egypt: CA Egypt44 branches101,000 private customers1,520 staff
Yemen: Calyon**
Portugal: BESHolding in BES: 23.8%
AlbaniaRoumaniaBulgariaCyprus
Spain: BankinterHolding: 20% ***
Madagascar: BNI Madagascar
6
1. Introduction to Crédit Agricole Group1.4. Corporate & investment banking
Western Europe
Australia
Eastern and Central Europe
Africa / Middle-East
N & S. America Asia/Pacific
** offshore branches
France
UK
The Capital Markets and Syndicated loans teams work from a dual London-Paris platforms
Austria
Belgium
Finland
Germany
Greece
Italy
Luxembourg
Monaco
Nertherlands
Norway
Portugal
Spain
Sweden
Switzerland
United States:
• New York
• Chicago
• Dallas
• Houston
• Los Angeles
Canada
Chile
Brazil
Mexico
Venezuela
Uruguay
Argentina
Japan :
• Tokyo
• Osaka
China:• Beijing• Shanghai• Guangzhou• Tianjin• Xiamen• Shenzhen
Hong Kong
India:• Mumbai• Delhi• Chennai• Ahmedabad• Pune• Bengalore
Indonesia
Korea
Malaysia**
Philippines**
Singapore
Taiwan
Thailand
Vietnam :• Hanoi• Ho Chi Minh City
Managed by the International Retail Banking divisions of Crédit Agricole S.A. and Calyon
Czech Republic
Hungary
Poland
Russia:• Moscow• St Petersburg
Slovakia
Ukraine
Serbia
Algeria
Tunisia
Lybia
Morocco
Cameroon
Djibouti
Gabon
Ivory Coast
Madagascar
Republic of Congo
Senegal
South Africa
Bahrain
Egypt
Iran
Israel
Kazakhstan
Saudi Arabia: BSF
Turkey
United Arab Emirates
Yemen
Branches or banking subsidiaries
Representation offices
Other affiliates (brokerage, etc.)
Managed by the International Retail Banking divisions of Crédit Agricole S.A. and Calyon
7
1. Introduction to Crédit Agricole Group1.5. Key figures – Crédit Agricole Group
In Eur million
Net banking income
Gross operating income
Net income (group share)
Shareholders’ funds (group share)
2007/200820082007
29,610
9,338
5,970
64,800
28,455
8,263
2,451
63,700
(3.9 %)
(11.5 %)
(58.9 %)
2007 - 2008
8
1. Introduction to Crédit Agricole Group1.6. Breakdown of new loans by Crédit Agricole
Group
Source : Crédit Agricole SA
Agriculture
Companies incl.
Cooperatives
Public & private authorities
Handcraft, shop,Self-employee
Housing
47%
19%
16%
11% 7%
1990 2008
Housing
Agriculture
Consumer
Others 51%11%
8%
14%6%7%
3%
Companies incl.
Cooperatives
Handcraft, shop,Self-employee
Public & private authorities
9
1. Introduction to Crédit Agricole Group2. Key features and figures of France’s farming
sector3. The risk approach of Crédit Agricole4. An accelerated and integrated solution for the
financing of farm machinery: the AGILOR solution5. Crédit Agricole’s agricultural insurance services:
crop insurance6. Crédit Agricole’s soft commodities hedging
services7. Crédit Agricole’s risk policy and monitoring
methodology
Risk management in agricultural financing
Crédit Agricole: a leading partner to an ever-changing world
10
2. Key features and figures in France’s farming sector
2.1. Key features63.6
22.1
44.742.7
38.8
22.8
0
10
20
30
40
50
60
70
Source : Eurostat
€ BnFrance: Europe’s leading agricultural
producer
0
1
2
3
4
5
6
7
8
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Source : INSEE – national accounts
As a % of GDP (current)Share of agriculture & food industry in
France’s GDP
Agriculture, forestry and fishing
Food industry
2007
Number of farms
0
200
400
600
800
1 000
1 200
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006Source : SCEES
Thousands
1 017
507
574
326
Total
Full-time professional farmers
Individual farmers 59 %
Other legal forms 7 %
EARL 21 %
GAEC 13 %
Legal forms of farming businesses (2007)
11
2. Key features and figures in France’s farming sector
2.1. Key features (cont’d)Evolution of farming income Evolution of investments in the farming sector
Registration of tractors & combine harvesters
Farm building construction
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
80 82 84 86 88 90 92 94 96 98 0 2 4 6
Million m2 (surfaces authorized by building permits)
Source : Ministère de l’Écologie, du Développement et de l’Aménagement durables
Warehouses
Farm building constructions excl. warehouses
0
5
10
15
20
25
30
35
40
45
88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9
Thousand
Source : SYGMA et Crédit Agricole SA
2,67
41,8(f)Tractors
Combine harvesters
Source : INSEE et SCAFR
€ Bn
0
1
2
3
4
5
6
7
8
9
10
11
12
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7
GFCF10,8
Agricultural equipment
Building
Farm machinery
20
40
60
80
100
120
140
160
91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8
Farms
136,9
Index basis 100 = 1991
Sources : SCEES et RICA
12
2. Key features and figures in France’s farming sector
2.2. The financing of French farming sector by Crédit AgricoleBreakdown by sub-sector
Evolution of investments in the French farming sector & new MLT loans (subsidized
vs. non-sub.)Evolution of outstanding loan portfolio
Source : Crédit Agricole SA
Forestry, fishing, hunting
side services
Porcines,poultry
Other productions
Cereals, legumesand oleaginous
Vineyards
3%
34%
20%1%22%
1%
11%1%
2%2%
Bovines
Fruits
Cultivation,livestock farming
Other sectors
Vegetables, melons,
roots, tubers
3%
Ovines,goats
Source : Crédit Agricole SA
0
5
10
15
20
25
30
35
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 7
€ Bn
32,8
1,7
Total outstanding loan portfolio
Subsidized outstanding loan portfolio
New serie since 1994 incorporating in arrears and in advance interests
€ bn
Source : Crédit Agricole SA
0
1
2
3
4
5
6
7
8
9
10
11
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8
4,94,6
4,2
3,13,4
3,94,3
4,7 4,85,4
4,74,9 5,3
5,65,9 5,7
5,5
6,3
7,1
Subsidised
Non-subsidized
FGCF
10.8
In 2008, Crédit Agricole’s lending activity in the farming sector amounted to:
€ 7.1 bn of new MLT loans € 38.1 bn in outstanding loan portfolio(including home loans for farmers)
Crédit Agricole provides banking services to 9 out of 10 farmers in France.
13
1. Introduction to Crédit Agricole Group2. Key features and figures of France’s farming
sector3. The risk approach of Crédit Agricole4. An accelerated and integrated solution for the
financing of farm machinery: the AGILOR solution5. Crédit Agricole’s agricultural insurance services:
crop insurance6. Crédit Agricole’s soft commodities hedging
services7. Crédit Agricole’s risk policy and monitoring
methodology
Risk management in agricultural financing
Crédit Agricole: a leading partner to an ever-changing world
14
3. The risk approach of Crédit AgricoleCrédit Agricole’s approach is based on the identification and understanding of the farming activity itself from the point of view of farmers / clients.
What are the risks and needs of a professional farmer?
THE FARMER His family,
His partnersHis employees
Work and non work-related health riskCapital riskTax and financial risk
Farm machinery riskRisk of building destructionPhytosanitary and zoosanitoary risk
Liquidity risk
Yield loss riskQuality loss riskPrice riskRisk of excess supply
Risk of “bad" investment
Input price risk
Inventory riskSpeculative risk
Climate riskNatural disaster risk
Social risk
Complaints from consumers, clients, associations
Regulatory risk
Natural resources(water, land…)
Factors of production(farm machinery, livestock,
plantations)
Cash
SalesInvestments
Input expensesInventories
New standards related to production or sales
15
3. The risk approach of Crédit Agricole
How Crédit Agricole is addressing these needs and risks:
Health insurance GAV pro
RC, sick-leave insurance Valeur prévoyance
ADI PERCO
Work and non work-related health riskCapital riskTax and financial risk
Farm machinery riskRisk of building destructionPhytosanitary and zoosanitoary risk
Liquidity risk
Yield loss riskQuality loss riskPrice riskRisk of excess supply
Risk of “bad" investment
Input price risk
Inventory riskSpeculative risk
Climate riskNatural disaster risk
Agricultural multiple risk: legal option
Complaints from consumers, clients, associations
Pleinchamp.com
Weather insurance Advanced weather services DPA account
Vehicle insurance Farm equipment insurance Agricultural multiple risk insce
Livestock disease & death insurance
Prêt option souplesse Prêt calamité DPA savings account
Advisory and expertise Precautionary and transaction savings
> Prêt option souplesse
Agricultural multiple risk Soft commodity derivatives
Crop insurance Soft commodity derivatives Pleinchamp.com Export insurance International services coverage
16
3. The risk approach of Crédit Agricole
Tailored solutions to improve farmers’ security
Risks that may impact farming income
Economic
hazard
World market price volatility
Farm income smoothing
Climate
hazard
Crop insuranceby Pacifica
Climate &
economic
hazards
DPA savings account: tax free contingency plan
Soft commodities derivatives
Traded by Newedge
17
1. Introduction to Crédit Agricole Group2. Key features and figures of France’s farming
sector3. The risk approach of Crédit Agricole4. An accelerated and integrated solution for the
financing of farm machinery: the AGILOR solution5. Crédit Agricole’s agricultural insurance services:
crop insurance6. Crédit Agricole’s soft commodities hedging
services7. Crédit Agricole’s risk policy and monitoring
methodology
Risk management in agricultural financing
Crédit Agricole: a leading partner to an ever-changing world
18
4. An accelerated and integrated solution for the financing of farm machinery: AGILOR
solution
3 actors intervene:
Agricultural equipment dealer
Crédit Agricole Regional Bank
A common client
The loan is proposed by the merchant, on behalf of Crédit Agricole.
Nationwide standardized tools in Regional Banks:
• Standard national contract
• Extranet at the disposal of merchants and shared with all Regional Banks:
• Simulation, pricing list and contract edition,
• Immediate online transfer of financing demands,
• Online follow-up of applications and disbursements
19
AGILOR solution advantages:
For farmers
• Simplified procedures: one single request at the merchant’s shop
• Attractiveness of the pricing
For dealers
• A single counterpart within the Regional Bank: the AGILOR unit
• Accelerated decision-making process: 48 hours max.
• Certainty of payment: direct payment to the merchant’s bank account
For Crédit Agricole
• Reinforcing partnerships with machinery merchants
• Strength to improve / maintain its market share in a more competitive world
• Competitive advantage due to its capacity to take anticipated decisions on the loan approval process
4. An accelerated and integrated solution for the financing of farm machinery: AGILOR
solution
20
AGILOR solution embraces a variety of lending and leasing solutions:
1. Subsidization by the merchant and/or the manufacturer
2. Special agreement with John Deer
3. Leasing solution
4. An accelerated and integrated solution for the financing of farm machinery: AGILOR
solution
21
1. Introduction to Crédit Agricole Group2. Key features and figures of France’s farming
sector3. The risk approach of Crédit Agricole4. An accelerated and integrated solution for the
financing of farm machinery: the AGILOR solution5. Crédit Agricole’s agricultural insurance services:
crop insurance6. Crédit Agricole’s soft commodities hedging
services7. Crédit Agricole’s risk policy and monitoring
methodology
Risk management in agricultural financing
Crédit Agricole: a leading partner to an ever-changing world
22
5. Crédit Agricole’s agricultural insurance services: crop insurance
A climate multiple risk insurance which covers 11 events :
> For all crops except fruit : - Wind gust
- Sandstorm
- Storm rain
- Excess humidity
- Excess snow
> For all crops : - Hail
- Frost
- Storm
- Drought
- Flood and excess water
Risks not covered: Diseases not caused by a climate risk
Insects, animals damage
Weaknesses of farmers capacity
23
5. Crédit Agricole’s agricultural insurance services: crop insurance
Insurance take out: general principles• The entire surface area occupied by a single crop is insured:
Goal: limiting adverse selection
• Information included in the insurance contract taken from financial statements
Goal: based on information that can be checked
• Limited insurance take-out period
Goal: no insurance for a CERTAIN risk
Historical data
Determination of the guaranteed yield and historical price:
Historical yield: (Sum of the last 5 crop yields minus the worst yield minus the highest yield) / 3Guaranteed yield: historical yield x ( 1 – insurance cost)Average historical price: (Sum of the 3 last prices) / 3
2008 2007 2006 2005 2004 2008 2007 2006Historical yield (in T/ha) Historical price in (€ / T)Nature of
the cropSurface area
(in ha)Hail option
Insurance cost (%)
24
Sept – Oct.
2009 2010
Sowing soft wheat Harvest
July – AugustJune
Drought
1st assessment: Acknowledgement of damages
Intermediary assessments: control of planting practices
Final assessment: Estimation of
damages
Storm rains
Assessment: Acknowledgement of damages
Compensatio
n for re-sowing costs
Payment of compensation (30 %]
Example of damage assessment: soft wheat
May
Coverage period
5. Crédit Agricole’s agricultural insurance services: crop insurance
Payment of compensation
(70 %)
25
5. Crédit Agricole’s agricultural insurance services: crop insurance
Example of compensation in case of damages
Historical data
Compensation if damages occur:
Due to a drought, the realized crop yield is 6.5 T/ha.
The compensation amounts to:
(Guaranteed crop yield – realized crop yield) x average historical price x surface area
Compensation = (7.2 T/ha – 6.5 T/ha) x 110 €/T x 50 ha
Compensation = € 3,850
2008 2007 2006 2005 2004 2008 2007 2006Soft wheat 50 yes 10% 9 8 7 7.5 8.5 97 120 113
Historical yield (in T/ha) Historical price in (€ / T)Nature of the crop
Surface area (in ha)
Hail optionInsurance cost
(%)
Historical yield (in T/ha)
Guaranteed yield (in T/ha)
Average historical price
(in €/ha)
Surface area (in ha)
8 7.2 110 50
26
1. Introduction to Crédit Agricole Group2. Key features and figures of France’s farming
sector3. The risk approach of Crédit Agricole4. An accelerated and integrated solution for the
financing of farm machinery: the AGILOR solution5. Crédit Agricole’s agricultural insurance services:
crop insurance6. Crédit Agricole’s soft commodities hedging
services7. Crédit Agricole’s risk policy and monitoring
methodology
Risk management in agricultural financing
Crédit Agricole: a leading partner to an ever-changing world
27
6. Crédit Agricole’s soft commodities hedging services
Financial instruments available on soft commodity futures and options markets allow farmers to:
Hedge downward price risk through futures contractsBenefit from higher price or hedge downward risk thanks to options contracts
Why soft commodity futures and options markets are interesting for farmers:
Farmers can fix operating margins by determining selling price up to 16 months in advance.
Thus, accessing to soft commodity markets contributes to enhance the financial sustainability of the farm.
Correlation between soft commodity futures and options markets and physical markets permits an efficient hedging strategy in a downward or upward case.
Why should farmers adopt a hedging strategy:
High price volatility+
Decreasing operating margin=
Operating risk
28
6. Crédit Agricole’s soft commodities hedging services
3 actors are involved in Crédit Agricole’s soft commodity hedging services :
> Crédit Agricole Regional Banks
> Newedge Group
Crédit Agricole Group – Société Générale joint venture A world leader giving clients the opportunity to access more than 80 global exchanges
Functions: Direct transfer of orders through phone to the trading floor in charge of execution Same access for farmers and major actors Assistance and advisory from Newedge experts Daily balance reporting
> Agritel
Training
29
6. Crédit Agricole’s soft commodities hedging services
Opening of a “MAT” bank account
1. Bank account opening with 3 products: Opening of a bank account exclusively dedicated to futures and
options markets Issuance of a compulsory bank guarantee as required by the financial
market regulator Loan granting in order to post regulatory collateral and daily margin
call
2. Process Meeting with the farmer and his banker Determination of the maximum number of lots that the farmer can
subscribe and of the required credit amount and guarantee according crop rotation and yield
2 weeks = delay between the first meeting and the opening of the dedicated bank account
30
1. Introduction to Crédit Agricole Group2. Key features and figures of France’s farming
sector3. The risk approach of Crédit Agricole4. An accelerated and integrated solution for the
financing of farm machinery: the AGILOR solution5. Crédit Agricole’s agricultural insurance services:
crop insurance6. Crédit Agricole’s soft commodities hedging
services7. Crédit Agricole’s risk policy and monitoring
methodology
Risk management in agricultural financing
Crédit Agricole: a leading partner to an ever-changing world
31
7. Crédit Agricole’s risk policy and monitoring methodology
7.1. Guarantee policy
The best guarantee:
The perfect knowledge of the farmer, his business and his environment
For long term loans and large loan amounts:Such as: acquisition of a farm, of land or real estate, hydroponics setup
Additional requirements: Either a personal guarantee Or a mortgage/a pledge on farm machinery as a collateral for all or part of the loan.
For short term loans: A crop or livestock warrant From time to time, direct payment from buyers (cooperative or trader) or from the proceeds of the Single Farm System (CAP)
32
7. Crédit Agricole’s risk policy and monitoring methodology
7.2. Decision process
The delegation of powers policy relies on:– 5 decision levels (Branch, Local Branch, Departmental Committee, Enterprises Loan Committee & Regional Bank Board of Directors) according to the loan amount. The entire loan outstanding is taken into account: enterprise, partners, subsidiaries.– a Basel II counterparty risk scale 2 : grade alphée (banking behaviour and accounting rating) from 1 (excellent) to 5 (litigation) – a banking incident rating scale from 0 to 3.
Each decision is preceded by an opinion from the previous decision bodies
and the branch manager.
33
7. Crédit Agricole’s risk policy and monitoring methodology
7.2. Decision process: example of delegations of powerMain activity: farmers
Loan outstandingin € thousand Loan officer or branch manager or regional
branch manger
Departmental Committee with RB risk opinion
Enterprises Loan Committee with RB risk opinion
Local Branch
Regional Bank Board of Directors with RB risk opinion
Local Branch with banking expertise opinion
Excellent rating Good rating Poor rating
34
7. Crédit Agricole’s risk policy and monitoring methodology
7.3. Use of ANADEFI in Regional Banks
Loan granting decision, pre-approval Price, margin, return/yieldDelegation of powersGuaranty ...
Basel II
RiskManagement
Corporategovernance
Alerts et controls Risk trackingPortfolio reviewLoan recovery & litigationProvisions
Loan granting
Capitalrequirement
Decision on business development, credit, risk/return policies Organize, from granting to loan recoveryTarget objectives PilotFinancial management decision
… widely used at the Regional Bank level
ANADEFI = Financial sustainability and profitability analysis tool
35
7. Crédit Agricole’s risk policy and monitoring methodology
7.4. Agri-pro counterparty rating process
Financial statementsAccounting
rating
Client information
Business liability
Savings
Personal liability
If sole proprietorship
Bankingrating
Counterpartyrating
EVERY YEAR
EVERY MONTH
Same for all partnersof the risk group
36
7. Crédit Agricole’s risk policy and monitoring methodology
7.4. Agri-pro counterparty rating process Counterparty rating: evaluation of the creditworthiness of a client.
Imperatively taken into account during the loan granting process.
Probability of default: measure the default likelihood in 1 year.Expressed in %Same risk group = same counterparty rating = same PD
Grade PD Grade PD Grade PD
EFG
0,28 % 0,72 %1,56 %
HI
3,14 %6,67 %
JKLV
12,8 %25,7 %42,4 %100 %
GOOD CLIENTS
DEVELOPMENT ?
WATCH LIST KEEP UP
?
WITHDRAWAL
?