The Group Head, Agriculture & Solid Minerals Finance, Sterling Bank Plc, Bukola Awosanya in this interview with Kayode Tokede disclosed that the bank during the COVID-19 lockdown invested N10bn in agriculture sector. She spoke on factors contributing to Agriculture sector Non-Performing Loans (NPLs) and ways commercial banks can partner with the federal government to drive value chain of the sector. Excerpts:
As one of the major financial institutions driving agric sector rebound in Nigeria, could you share recent success stories recorded by your bank in the sector financing?
In recent years, we have carved a niche for ourselves in the area of agricultural financing by developing innovative and bespoke solutions that cut across various segments of the agricultural value chain. A vivid example is SABEX – a digital solution that links farmers to buyers via the deployment of block chain technology. The platform also provides access to finance and addresses the issue of post-harvest losses which is a major factor militating against profit maximization for farmers in Nigeria and across Africa.
Sterling, with this innovation, has been able to make inputs available to farmers at the last mile especially those up-country during the COVID-19 lockdown. Interestingly, the platform provides access to warehouses across the country for storage of harvested produce, especially during the off-season. Farmers were able to go to the farm and today we have food from last year’s harvest.
The SABEX platform also serves as an online market place/ecosystem that connects aggregators and processors and seeks to solve the problem of arbitrage and poor pricing mechanisms for commodities. In addition to this, farmers are also able to access loans via the issuance of tokenized warehouse receipts against their harvested produce in the warehouses across the country, thus leading to improved cultivation.
The Bank has also significantly taken on improving access to information for farmers through the launch of the Sterling Farmers Radio by providing relevant and timely information to farmers on Good Agronomic Practices (GAP) and latest trends in agriculture. The radio programs are aired across major radio stations pan-Nigeria in the major local languages (Hausa, Yoruba and Pidgin) across the 6 geological political zones of the federation.
As you may be aware, Sterling has organized the Agriculture Summit Africa (ASA) for the past three years which has significantly impacted our customers’ businesses and the bank’s brand reputation as an industry leaderin the agribusiness finance subsector. This yearly summit has not only brought together stakeholders to deliberate critical issues affecting the sector but also has been able to facilitate knowledge sharing, public-private collaborations and recent innovations in the agribusiness. Our wholly sponsored radio programme, as well as SABEX commodity trading platforms among others, are resolutions from past editions of continent-wide Agric Summit Africa. As you can see, our summit is beyond the regular talk shows others engage in.
Despite 5.49 per cent drop to N48.53 billion in Q3 2020 as against N51.35 billion recorded in Q2 2020, NPL in the agriculture sector is still high. Could you highlight major factors contributing to NPL in the sector and ways to tackle them?
As with everything that has its downside, the agriculture sector is not without its inherent risks. These sometimes crystallize in the forms of facilities that aren’t well structured or with inadequate mitigants being put in place.
At Sterling, the non-performing loans granted to the agribusiness sector are currently below 2%, which is well within the acceptable barest minimum. This is largely due to our staff who are specialists in various agricultural disciplines and are exposed to regular training by the bank in risk management, cash flow analysis and other financial and non-financial credit evaluation techniques, with significant experience in the sector. These contribute to how we assess the loans for disbursement and greatly improve the performance of our loan books.
Now, speaking across the industry, some of the other factors contributing to the high rate of non-performing loans in agribusiness include widening knowledge gaps about agribusiness practices and related cycles and transactions among some creditors to the sector. This greatly impacts the capacity to structure deals that are sustainable down-the-line.
Another factor worthy of note is frequent policy changes. It makes the credit environment unstable leading to anxiety and uncertainties. Adding to this is the lack of innovative and bespoke products that are designed to be resilient in lending to borrowers
Furthermore, the lack of proper monitoring of the project by the financier after disbursements has been made to affect performance. That is why you see most customers are highly pressured before their facilities can be serviced.
Of course, the issue of geopolitical instability in parts of the country is a relevant factor. The unrest in North-Eastern part of the country, kidnapping, banditry and clashes between farmers and herdsmen, etc have adverse effects on loan repayment at least since the insurgency in that part of the country got to the head.
To sum it all up, variance in production and the market occasioned by pricing risks and the absence of adequate instruments; high transaction costs incurred due to poor infrastructure, low levels of demand caused by weakly integrated value chains, lack of and inaccessible insurance policies among many others are reasons loan repayment can be challenging among farmers. It is worthy of note that these are some of the issues we have been working on like a bank. Even though our areas of interventions are limited, we are always seeking partnership with relevant stakeholders to make the sector work.
Why are most big banks not interested in loan disbursement to the sector?
We do not think that this is still the situation as lending to the sector has improved in the last few years. However, weakened lending appetite among major financial institutions can be attributed to the perceived risk and unstructured nature of the sector and possibly the gaps in specialisation in the sector.
How can the federal government and commercial banks partner to drive the sector value chains?
The Government needs to formulate more sustainable, consistent and sector-friendly policies and regulations that will encourage and accelerate industrialisation as well as promote an increase in local content participation while providing more low-cost funds with longer tenor – which will, in turn, cater for the peculiarity of projects within the sector.
Commercial Banks also need to think outside the box by developing bespoke products and solutions that can cater for the needs of the various players across the agricultural value chain. In addition to this, banks must go beyond intervention funding by partnering with DFIs, donor agencies and angel investors in attracting funding to the sector.
What government policies are militating against sustainable farming in the country? How best can government encourage aggressive participation?
Ours is a growing economy and so, there are areas requiring improvement. I believe the government and relevant stakeholders are regularly charting the way forward with regards to not only policy issue but also matters needing political will.
It is also important that the government consider the country’s critical needs before formulating policies that have a higher chance of expanding the output of our economy.
What are the core areas Sterling Bank is utilizing right now to transform the sector post COVID-19?
There’s only one core area that comes to mind – digitization. As a leading financial institution, we have been digitising a lot of our work processes to insulate against disruptions in the business environment before the pandemic’s impact. This has helped us transition seamlessly, maintain our efficiency and continue to serve our customers even during the ongoing pandemic.
On the Agric sector, our SABEX platform is an area that addresses challenges of the market, finance and post-harvest losses digitally. Any farmer seeking an improvement to its performance can consider the use of the platform in any part of the country today.
In terms of Sterling bank investment in agriculture, how much has the lender invested amid the covid-19?
Sterling invested over N10billion during the COVID – 19 period and has hit the 10% threshold of sectoral allocation of funding to agriculture during the pandemic alone.
The lender last year hosted Agriculture Summit Africa (ASA). Has that summit addressed major issues discussed and what has been the impact?
The summit has been addressing issues discussed, the communique has been shared with relevant stakeholders to address more issues. The impact has been great with goodwill messages coming in as well as inquiries from the over 12,000 participants at the hybrid edition have been impressive. As mentioned earlier, we have improved the business of agriculture for the past three years in which we have held the Summit.
With the Sterling Bank agribusiness facility for women and youth, how much has the bank disbursed?
We have made a few disbursements and currently over N1billion awaiting disbursement. These should be disbursed in the coming weeks.
With the introduction of African Continental Free Trade Area (AfCFTA), is Sterling bank properly positioned to drive earnings and disburse credit facility to those in the agribusiness?
Yes, the bank is favourably disposed to financing the sector, especially through the SABEX platform and other windows available. Besides, our Export and Structured Trade Finance Unit has been doing a lot of sensitisation and training to some existing and prospective clients. We want to be sure more eligible stakeholders are lent to, it is only by this that we can truly change the African story for good.
What plans has Sterling Bank towards the sector this year and in the next five years?
The plans we have for the sector now and in the next five years include first, to continue to grow the business of the bank through the sector and impact positively on the bank’s bottom-line as apart of its strategic corporate objectives of HEART (Health, Education, Agriculture, Renewable Energy and Transportation).
Secondly, we intend to increase our allocation to the sector as a bank from 10% to 20% of the bank’s total balance sheet. This will ultimately take our disbursement to smallholder farmers to over 100,000 through the single-digit programme: SWAY – Agfin platform.
In addition to this, commodity exchange is another big thing we are focusing on. So, we will drive SABEX to run as a full-blown commodity exchange platform with global participation, in line with available best practices. This will definitely further improve investment in agriculture, improve participation and overall food production and export, thereby allowing the country to earn more forex.