Banks' Ag Lending Increases $6 Billion in 1998

September 9, 1999

An analysis of banks' performance in 1998 shows an increase of $5.9 billion in agricultural loans over 1997 to $70 billion. The country's 2,951 farm banks held $37.3 billion in agricultural loans for land purchases and production in 1998, an increase over $36.7 billion in 1997. The figures are from an analysis by the American Bankers Association.

"Farm banks" are defined as those with less than $500 million in assets and at least 16.22% of their loans in farm production or real estate, and ABA also says they're getting ready for problems this year and into 2000 from low commodity prices.

Total agricultural credit outstanding for all agricultural-industry lenders expanded for the sixth consecutive year to $170 billion last year. Ag loans held by commercial banks exceeded $69.9 billion, resulting in a 41% market share. More than 40 cents of every dollar in agricultural loans is made by commercial banks.

Farm banks earned $2 billion in 1998, $66 million more than in 1997; return on assets was 1.21%, a decline from 1.25% in 1997; total assets increased 8.7% to $175 billion; consumer loans increased 2.9% to $12.3 billion compared to 1.7% for all commercial banks; asset quality remained favorable despite low commodity prices and weak demand for agricultural exports.

"Farm banks are healthy and stable, but they are beefing up their reserves to cover potential credit problems as their farm and ranch customers face tough economic times," says ABA Senior Economist Keith Leggett. "In 1999 earnings may not be as robust in this unprecedented environment of low commodity prices."

Deposit growth is not keeping up with loan demand, the ABA survey found. "To meet loan demand, farm banks are turning to other sources to get lendable funds including the Federal Home Loan Banks and the Federal Reserve, " says Leggett.