Alberta Treasury Branch, Alberta’s largest farm lender, expects to see more than $30 million in agricultural loan losses due to BSE this year, but despite this it increased farm lending 13.9 percent.
Bob Normand, president of ATB Financial, said Feb. 18 that his company made a $29.4 million loss provision for bovine spongiform encephalopathy problems earlier in its 2003-04 business year.
Despite its ranking as the largest agricultural lender in Alberta, BSE won’t threaten its financial stability due to “dramatic diversification” in its investments and lending “from where it was in agricultural Alberta 20 years ago,” said Bob Mann, ATB vice-president of risk management and credit. Mann said oil patch and urban real estate business would help the company handle the BSE losses.
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“Originally we modelled our potential losses on the border opening at a specific time,” said Mann.
“With the second case of BSE, we found we had to look at a different situation. We remodelled our book (of business) at that time with four different scenarios, weighted for likelihood of outcome, and found surprisingly the effect on our producer customers was very similar to our original model (that included a much earlier resumption of live animal trade with the United States).”
No crystal ball
Normand said the company can’t predict when something big will come along and hurt the industry, but it can find ways to deal with it.
“We expect and budget for losses. … In addition, we set aside approximately $29 million in special provisions (for BSE),” he said.
“We have been working with each customer individually, rather than creating a general policy to deal with this problem. (We have) been trying to restructure each affected farm customer’s loans with us to reflect these changes in equity and (cash flows).
“We are trying to be reasonable. For example, our agricultural book of business (loans, assets and deposits) from March-December (2003) is up 13.9 percent over last year. We can’t be accused of cutting back on farm lending,” said Normand.
The loss of value in fall feeder calf markets, combined with feedlot losses, have impaired many producers’ ability to make loan payments.
“We haven’t seen the seasonal pay-downs (of cattle producers’ loans) we normally see at this time of year, outstandings (unpaid loan payments) are much higher this year than last or on average,” he said.
Feedlot operators who have higher debt equity ratios than the average cow-calf rancher have been especially hit.
Mann said the company is looking forward to the possibility of government loan guarantees that will allow cattle feeders to refill their lots and allow cow-calf producers to sell.
Normand said even when the border reopens the industry will not get back to normal.
“Packers’ practices have changed. There are greater costs inherent in the system now, even if the border opened tomorrow, and they are permanent. That demand for the organ meats (and byproducts) is gone.
“It could be a few years until consumers trust the new feeding practices and (meat from animals older than 30 months) is fully accepted,” he said.
For the third quarter ending Dec. 31, 2003, ATB increased its assets 7.4 percent to $14.1 billion, increased lending by 6.53 percent to $12.1 billion, deposits by 7.34 percent to $12.9 billion, and saw its loan loss provisions increase from 0.75 percent of all loans one year ago to 0.85 percent this year.
