Despite decreasing revenue, most industry banks have returned to positive profit growth
New York, NY (PRWEB) August 07, 2014
The historically low interest rates that have persisted throughout the duration of the five-year period have extensively damaged interest income for the Agricultural Banks industry. Industry operators specialize in providing farmland and farm production loans to the agricultural sector; more specifically, agricultural banks dedicate a portion of their total loans to agriculture. Revenue for agricultural banks is composed of interest income from lending products and non-interest income, which is largely derived from fees. According to the latest available data from the Federal Deposit Insurance Corporation, both total agricultural bank lending and loans to the agricultural sector specifically have increased moderately from 2009 to 2013. Yet, despite increased lending, low interest rates have caused interest income to decrease consistently over the same period. Consequently, industry revenue is expected to fall at an annualized rate over the five years to 2014; this decline includes a revenue dip expected in 2014, largely stemming from falling agricultural prices.
Moreover, industry wage costs have increased moderately, at an estimated annualized rate over the five years to 2014, despite falling revenue. Yet, the industry's average profit margin has still managed to spike over the five-year period. The primary catalyst for this change has been the sharp fall in aggregate interest expenses for the industry. In addition, the industry's improving asset quality, as depicted through a falling nonperforming loan ratio, has allowed operators to decrease their loan loss provisions, to the benefit of profitability.
The Agricultural Banks industry operates with a low level of market share concentration. Over the five years to 2019, industry revenue is forecast to rise at an annualized rate. Anticipated increases in domestic interest rates largely explain the industry's improving interest income. Yet, the industry is forecast to continue the consolidation trend that has persisted since at least 1999. Industry operators are expected to view mergers and acquisitions as a means to boost their scale and compete against external commercial banks. While banks like Wells Fargo fall outside the scope of the industry, given that their farm loan concentrations fall below historically accepted levels, they still provide massive amounts of domestic farm loans and pose mounting competitive threats to agricultural banks.
For more information, visit IBISWorld’s Agricultural Banks in the US industry report page.
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IBISWorld industry Report Key Topics
Operators in the Agricultural Banks industry specialize in lending to the agricultural sector. More specifically, banks in this industry dedicate at least 14.42% of their total loans to agriculture.
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