Bulgarian Banks Woo Farmers

Bulgarian agricultural producers, who used to be the riskiest bank customers, have now turned into a target of special attention by the banks.

Bulgarian banks are wooing farmers as the agricultural sector in Bulgaria is scheduled to receive 680 mln euro of EU funding for 2007 alone. As part of this scheme, a total 180 mln euro of EU funding will be disbursed under the programme of payments by hectare of cultivated land in 2007 and all farmers who had registered by June 25, 2007 at the Payment Agency are entitled to such funding. According to the State Fund Agriculture (which doubles as a payment agency but is still awaiting accreditation from Brussels), more than 79,000 land owners and renters with a total of 3.4 million hectares of cultivated land have registered. The EU Common Agricultural Policy (CAP) provides funding for all owners of agricultural land which is in good ecological condition. This funding is the first EU agricultural funding that will be distributed in Bulgaria, as the payments will be made without farmers filing any projects.

Under the programme for the development of rural regions, Bulgaria will receive 3.2 bln euro between 2007 and 2013. Another 107 mln euro have been allocated under the programme for development of fisheries.

EU funding will be distributed only through banks. This fact brought together 21 Bulgarian banks and the Ministry of Agriculture and the meeting resulted in the signing of a memorandum of understanding. The document envisages that banks will offer farmers advance loans collateralised with future receivables of EU agricultural funding.

Interest rates

Two weeks after the memorandum was signed, all 21 banks have developed special products targeting farmers but most of the banks will announce their products in early August 2007. The annual interest rates on the loans are expected to range between 7.6 pct and 10.15 pct, but these rates could be further negotiated. "An applicant with a proven credit record will be able take out a loan at much better terms," said Svetoslav Piralkov, head of the SMEs department of Raiffeisenbank. Farmers will be able to apply for a loan only at the bank where they have opened their account.

The size of the loans will also vary from bank to bank. Allianz and First Investment Bank offer loans of 100 pct of the expected subsidy, while United Bulgarian Bank (UBB), Raiffeisenbank and Economic Investment Bank (EIBank) will lend between 60 pct and 85 pct of the size of the expected subsidy.

Procedures

All farmers that have applied for EU funding are entitled to file for a bank loan. A registered pledge is established to serve as collateral for the loan and the Payment Agency is then notified by the bank. The bank also files an application with the Central Pledge Registry for entering the registered pledge in that database. The integrated system for administration and control (ISAC) can detect cases when one and the same plot of land is being used to file several claims for EU funding and in such case the funding for this plot is withdrawn. The farmer cannot change his bank account, in which EU funding will be remitted, unless the bank agrees to that.

Risks

Farmers still have time to file for a loan for the autumn sowing season, Ivailo Todorov, head of the Association of Agricultural Producers, said. The association was among the organisations that initiated the scheme of advance loans collateralised by future subsidies.

The size of the loan will depend on the size of the cultivated plots as well as on the scope of the business of the farmer, commented Shezai Shekirov, head of the SME department of EIBank. EIBank offers a relatively low annual interest rate of 7.9 pct but limits the size of the loan to 60 pct of the expected subsidy. UBB will lend up to 70 pct of the expected subsidy but will carry out monitoring on its own, including checks on the agro-ecological condition of the plots, the risk of duplication of plots and the precise identification of plots on topographic maps. The Payment Agency will also review the acreage entitled to funding before determining the exact sum for each farmer, but this will most likely take place in October or November 2007.

21-27/07/07, P. 54

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