Assessment of Agrilending to Small and Medium-Sized Agriculture Producers in the Ukrainian Banking Sector

The sector is export-oriented and has demonstrated good performance even under crisis conditions. Small and medium-sized agriculture producers (SMPs) are an important category of agricultural producers, whose operations significantly affect the entire agricultural sector and social development across Ukraine. SMPs experience cash gaps due to reasons beyond their control, and they may satisfy their need for finance by replenishing floating capital or reinstating fixed assets through direct loans from banks and/or credit unions. However, the post-crisis period has seen banks expanding their loan portfolios predominantly by converting loans in foreign currencies into loans in Ukrainian Hryvnia (UAH). Despite this, real retail loan portfolios do not tend to grow, and there has been no trend toward material expansion of banks' portfolio of loans to SMPs during the last four and a half years. An analysis of available statistics indicates that neither banks nor SMPs are interested in lending/receiving loans at this time due to high interest rates. High risks and large losses sustained by agricultural producers cause substantial uncertainty in agriculture business operations, especially those of SMPs, leading to a higher percentage of defaults and discouraging banks from lending to SMPs. This, in turn, makes loans more expensive for borrowers, increasing agriculture production costs. The risks associated with agricultural production finance make loans more expensive for SMPs, which increases agriculture production costs. There are no reasons to expect bank lending to SMPs to grow in the short and medium-term. In a situation where demand for financing is high in areas outside of agriculture, banks are not sufficiently motivated to lend to agricultural SMPs, especially if their creditworthiness is doubtful. The study's findings suggest that it is not feasible for AgroInvest to allocate resources and make efforts to engage new partner banks for SMP lending purposes due to the low level of Ukrainian banks' activity in this segment of the lending market. It is recommended that AgroInvest not expand its collaboration with new banks and focus on training activities with its four defined partner banks, which already have certain developments and are willing and ready to invest their own resources in SMP lending. Additionally, it is recommended that AgroInvest continue developing cooperation with credit unions to develop their agrilending capabilities. The situation in the Ukrainian agriculture sector affects not only national food security but also the situation in other sectors of the national economy and development of rural areas where one third of the Ukrainian population resides. Agriculture is an important export-oriented sector of the national economy, and SMPs are an important category of agricultural producers whose operations significantly affect the entire agricultural sector and social development across Ukraine.