Los Angeles, CA (PRWEB) June 11, 2012
In the five years to 2012, the Agricultural Banks industry has suffered from exposure to bad loans and record low interest rates. Industry participants generate the majority of their revenue on the interest spread on farm loans, so when interest rates fall, the interest spread decreases, causing revenue to decline. Furthermore, industry firms struggled to originate farm loans from 2007 to 2009 due to a combination of weak demand from farmers and tighter lending conditions. As a result, industry revenue is expected to decrease at an annualized rate of 5.6% over the five-year period, totaling $15.3 billion in 2012. In response to the financial collapse, state and federal governments immediately passed several pieces of legislation that enforced higher deposit insurance, greater loan diversity and more transparency for federal regulators. “These factors, combined with a decrease in deposits, limited the number and value of loans an industry firm could give to farmers,” said IBISWorld industry analyst Eben Jose. Although industry revenue is expected to decrease 4.2% over 2012 due to low interest rates, many farm banks have returned to profitability over the past couple of years. Growth in downstream industries, which IBISWorld measures using the agricultural price index and demand from corn farming, grew considerably over 2011.
The agricultural price index increased an estimated 25.3% over the year while demand from corn farming rose about 40.4%. According to the Federal Deposit Insurance Corporation, net income for agricultural banks totaled $4.5 billion in 2011, which represented a 25.3% increase from 2010, and return on assets improved from 0.80% to 0.86% over the same period. However, despite recent industry performance, the number of agricultural banks has continued to decline. In the five years to 2012, the total number of industry firms is expected to decline at an annualized rate of 3.0% to 2,150. According to Jose, consolidation has been a result of the recession and the enormous increase in government oversight that resulted from it. Industry consolidation is forecast to continue through the next five years as smaller firms find it more difficult to profitably lend while complying with government regulations. However, the industry will return to growth in 2014 and is forecast to grow overall in the five years to 2017. Improved economic activity will boost revenue and decreases in charge-offs will increase profit margins over the period.
The top four companies in the Agricultural Banks industry generate about 12.0% of industry revenue. Concentration is increasing as large commercial banks provide an increasing share of agricultural loans. Examples of such firms include the four companies that are major players in the Commercial Banking industry (IBISWorld report 52211). These companies include Wells Fargo, J.P. Morgan Chase, Bank of America and Citigroup. The four companies that provide the most agricultural loans are Wells Fargo, Bank of the West, Rabobank and Bank of America. Meanwhile, J.P. Morgan Chase and Citigroup are ranked 10 and 11 in terms of total agricultural loans according to the American Bankers Association. This significant overlap is growing as such banks look to decrease risk by diversifying loan portfolios across a variety of industries. For more information, visit IBISWorld’s Agricultural Banks industry report page.
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IBISWorld industry Report Key Topics
Companies in this industry lend money to farmers, often over a long period of time and at low rates of interest. Banks in this industry dedicate at least 14.6% of their total loans to agriculture.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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