Bank of Ireland grew its agri-deposits by 28% during 2022, according to the financial services group which today (Tuesday, March 7) reported an underlying pre-tax profit of €1.2 billion for 2022.
In its 2022 annual report, published today, Bank of Ireland highlighted that agriculture was a “key sector” for its operations.
Bank of Ireland, which is the only privately held domestic bank in Ireland, grew its total income by 11% year on year in 2022 and secured total new lending of €15.6 billion in 2022.
Last year the bank launched a €100 million agri assist loan fund, which according to Eoin Lowry, Bank of Ireland’s head of agri, “drove its agricultural performance in 2022”.
Lowry said that last year was dominated by “dramatic inflation in farm input prices” and “record farm-gate prices”.
“What we have seen over 2022 in general in the market is that new lending to farmers fell to the lowest level in 10 years.
“Data from the Central Bank shows that in the first nine months of 2022 farmers took out about €400 million of new loans which is just shy of €100 million lower than the same period in 2021.
“That comes on the back of an ongoing trend that we have seen where the outstanding levels of debts on Irish farms today are at the lowest level in more than a decade,” Lowry said.
He said that specifically in relation to Bank of Ireland it “captured 55% of all new lending to farmers” in 2022 although the bank did not specifically provide any breakdown on what this amounted to.
According to Lowry across the board the agriculture sector delivered a strong performance throughout 2022, which translated into strong cashflows and increased cash reserves.
But he said Bank of Ireland also saw a demand from farm families for “additional working capital to fund the increase in input costs last year”.
“We had to fund additional working capital across the agri food supply chain so that was everyone from fertilizer and feed importers to the merchants and co-ops to farmers themselves,” Lowry added.
He said that an estimated additional €1.5 billion was needed by farmers to run their farms last year because of inflationary pressures.
One of the key issues which Bank of Ireland identified as a dominant trend throughout 2022 was the increase in agricultural land prices.
“We have seen a continued trend of upward prices over the last number of years. We expect that to continue with maybe a 6 -10% an increase in 2023 so we would expect an average level of prices of €12,000 per acre in 2023.
“However we are seeing a lot more deals at the upper scale for high quality land in areas where there are a high concentration of dairy farmers and we could see levels of up to €20,000 to€25,000 an acre there,” Lowry said.
According to Bank of Ireland’s head of agri this is being driven by new policy changes and regulations in relation to the environment and dairy farms both in relation to the purchase of land and the price that farmers are paying for land rental.
“This will impact on the cost of production of milk and our message to farmers, given the price outlook for milk, is that they should be very careful around decisions to rent land at these prices,” he added.
According to Lowry despite increased costs the agri-sector in general last year “performed strongly in 2022” and he expects that “profitability” will continue across farm systems in 2023 – all be it at lower levels than last year.
“Last year we saw record prices for farm outputs, we expect those to fall back to 2020 or 2021 levels this year and we expect some margin squeeze on farms due to continued high levels of input prices and we expect that they will fall back in the second half of the year.
“The biggest challenge that we see facing the sectors or the individual farm systems are the environmental challenges coming down the road particularly on highly stocked dairy farms with limited access to land,” Lowry warned.