“We’re not seeing a host of people lining up at the door because the bank has kicked them out. “
– LYNDON CARLSON
Credit will continue to flow to Canadian farmers despi te a global credit crunch that has decimated stock markets and triggered a global recession, says Lyndon Carlson, Farm Credit Canada’s senior vice-president of marketing.
“When I look at our (FCC) situation we’re going to have another record year for new credit extensions,” Carlson told CropLife Canada’s annual meeting in November. “And when I look at our competitors – the banks and the credit unions – they’re also very active today in the agricultural market. We’re not seeing a host of people lining up at the door because the bank has kicked them out.”
But Carlson said interest rates will rise to reflect tighter credit internationally, even though it appears that the Bank of Canada will continue to cut the prime lending rate.
Financially shaky businesses, including farms, will have more trouble getting credit, he said. But the reverse will also be true.
“Banks will be looking for quality opportunities to make loans,” Carlson said. “If you’re a very strong company or individual you might actually find yourself in a great position in terms of access to credit and in terms of price because everybody will want a piece of that credit.”
FCC, which has $16 billion loaned to farmers and agricultural companies said more than 99 per cent of its files are current. Meantime, the struggling red meat sector is getting a helping hand from the lower Canadian dollar.
“We’re competing on price (with the banks and credit unions) so that’s a good sign,” Carlson said in an interview. “We’re still seeing robust competition, which is nice. We’re very optimistic.”
In fact, Canadian agriculture is considered by most lenders as a good place to invest, with the risk ranked as “low” to “medium low.”
But the main reason for Carlson’s optimism is, unlike in the United States, Canadian banks are financially rock solid and the government and citizens are less indebted.
Canada has fewer banks, but they’re large and more heavily regulated than their U. S. counterparts.
Several American banks have gone broke, while the American government has invested trillions of dollars trying to keep others and the financial sector as a whole, afloat.
“Canada is a totally different story,” Carlson said. “We are ranked No. 1 by the World Economic Forum in Switzerland in terms of the health of our Canadian banks.”
Reminiscent of the Great Depression of the 1930s there have been several “bank runs” in the United Kingdom forcing the government there to intervene. It wasn’t that the banks were insolvent, but depositors panicked wanting to withdraw their money all at once.
Carlson blamed the world’s financial woes on easy consumer credit in the U. S. Many bought unaffordable houses assuming they couldn’t lose because the value was increasing. But the real estate bubble bust and housing values plunged.
To keep cash flowing, referred to as “liquidity,” lenders either get more money through increased savings deposits or package and sell off their loans to other investors, sometimes pension funds. Amer ican lenders claimed the mortgage debt was “triple A” rated, but it was really subprime. Investment houses were burned. That, and falling asset values, has kept investors out of the credit market, Carlson said.
“It wasn’t that the banks were afraid to lend, it was that they literally could not because they didn’t have the leverage so they couldn’t make a loan to you,” he said.
It’s also why as of Oct. 30, in an unprecedented move, the American government had invested $8 trillion in its financial sector.
“In a free market economy like the United States it’s quite remarkable how much the American government is going to actually take a share of ownership in so many American banks to help the American economy remain sustainable,” he said.
Canada is literally, a different country, and that’s a positive thing, Carlson said.
“When you look at our nat ional debt versus the American debt we’ve got the ability still as a nation to respond,” he said.
“Even the Risk Management Association, which is a well-regarded North American institution, looks at the risk profile of agriculture as being good. We believe those fundamentals remain in play and off we go.”[email protected]