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  • Graph 1: France is leading agricultural producer contributing to more than 18 % of EU production Graph 2: Lower share due to decreasing price of agriculture products Graph 3: Graph 4: definition of GAEC & EARL + In 1988, 89 % were individual farmers
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    • 1. Risk management in agricultural financing Crédit Agricole: a leading partner to an ever-changing world Jean Luc PERRON Managing Director Grameen Crédit Agricole Microfinance Foundation April 2009 – Johannesburg
    • 2.
      • 1. Introduction to Crédit Agricole Group
      • 2. Key features and figures of France’s farming sector
      • 3. The risk approach of Crédit Agricole
      • 4. An accelerated and integrated solution for the financing of farm machinery: the AGILOR solution
      • 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • 6. Crédit Agricole’s soft commodities hedging services
      • 7. Crédit Agricole’s risk policy and monitoring methodology
      Risk management in agricultural financing Crédit Agricole: a leading partner to an ever-changing world
    • 3. 1. Introduction to Crédit Agricole Group 1.1. Crédit Agricole’s organisation Joint-stock company Non for profit organisation Regional banks (39) Legal cooperative structure President Local Banks (2573) General manager Branches (7.000) Members (6 million) Clients (20 million) FNCA ( Fédération Nationale du Crédit Agricole ) Crédit Agricole S.A. Banking structure President Manager SAS La Boétie Holding Company
    • 4. 1. Introduction to Crédit Agricole Group 1.2. Key figures
      • French leader in retail banking …
      • No.1 banking network in France with 9,089 branches under two brand names (CA & LCL)
      • 26 million retail banking customers
      • 1.4 million business customers (independent professionals, companies and local authorities)
      • No.1 in France with a 28 % market share in personal banking
      • No. 1 in France in the financing of the farmers: 80 % market share
      • … with global reach
      • Present in more than 70 countries
      • 161,800 employees worldwide
      • 5 million retail banking customers outside France
      • 2,400 branches outside France
    • 5. 1. Introduction to Crédit Agricole Group 1.3. International retail banking Minority holdings * Regional Banks’ majority holding ** Directed by Calyon *** Including an acquisition of 14.66% finalized in February 2008 A significant international presence Ukraine: Index Bank 232 branches 159,000 private customers 3,300 staff Serbia: Meridian Bank 104 branches 179,000 customers 930 staff Greece: Emporiki Group 375 branches 1.5 million customers 6,700 staff Saudi Arabia: BSF** 62 branches Poland: Lukas Bank 151 branches 362,000 customers 1,940 staff Switzerland: CA Financements* 5 branches Uruguay: Credit Uruguay Banco 35 branches 139,000 customers 430 staff Belgium: CA/Landbouwkrediet* 274 branches 400,000 customers 1,680 staff Morocco: Crédit du Maroc 170 branches 560,000 customers 1,820 staff Italy: Cariparma, FriulAdria 677 branches 1.4 million customers 7,100 staff Spain: Bankoa * 46 branches 278 staff Djibouti: Banque Indosuez Mer Rouge Armenia: ACBA 17 branches 146,000 customers 422 staff Egypt: CA Egypt 44 branches 101,000 private customers 1,520 staff Yemen: Calyon** Portugal: BES Holding in BES: 23.8% Albania Roumania Bulgaria Cyprus Spain: Bankinter Holding: 20% *** Madagascar: BNI Madagascar
    • 6. 1. Introduction to Crédit Agricole Group 1.4. Corporate & investment banking Western Europe Australia Eastern and Central Europe Africa / Middle-East N & S. America Asia/Pacific ** offshore branches France UK The Capital Markets and Syndicated loans teams work from a dual London-Paris platforms Austria Belgium Finland Germany Greece Italy Luxembourg Monaco Nertherlands Norway Portugal Spain Sweden Switzerland
      • United States:
      • New York
      • Chicago
      • Dallas
      • Houston
      • Los Angeles
      Canada Chile Brazil Mexico Venezuela Uruguay Argentina
      • Japan :
      • Tokyo
      • Osaka
      • China:
      • Beijing
      • Shanghai
      • Guangzhou
      • Tianjin
      • Xiamen
      • Shenzhen
      • Hong Kong
      • India:
      • Mumbai
      • Delhi
      • Chennai
      • Ahmedabad
      • Pune
      • Bengalore
      • Indonesia
      • Korea
      • Malaysia**
      • Philippines**
      • Singapore
      • Taiwan
      • Thailand
      • Vietnam :
      • Hanoi
      • Ho Chi Minh City
      Managed by the International Retail Banking divisions of Crédit Agricole S.A. and Calyon
      • Czech Republic
      • Hungary
      • Poland
      • Russia:
      • Moscow
      • St Petersburg
      • Slovakia
      • Ukraine
      • Serbia
      Algeria Tunisia Lybia Morocco Cameroon Djibouti Gabon Ivory Coast Madagascar Republic of Congo Senegal South Africa Bahrain Egypt Iran Israel Kazakhstan Saudi Arabia: BSF Turkey United Arab Emirates Yemen Branches or banking subsidiaries Representation offices Other affiliates (brokerage, etc.) Managed by the International Retail Banking divisions of Crédit Agricole S.A. and Calyon
    • 7. 1. Introduction to Crédit Agricole Group 1.5. Key figures – Crédit Agricole Group In Eur million Net banking income Gross operating income Net income (group share) Shareholders’ funds (group share)  2007/2008 2008 2007 29,610 9,338 5,970 64,800 28,455 8,263 2,451 63,700 (3.9 %) (11.5 %) (58.9 %) 2007 - 2008
    • 8. 1. Introduction to Crédit Agricole Group 1.6. Breakdown of new loans by Crédit Agricole Group Source : Crédit Agricole SA Agriculture Companies incl. Cooperatives Public & private authorities Handcraft, shop, Self-employee Housing 47% 19% 16% 11% 7% 1990 2008 Housing Agriculture Consumer Others 51% 11% 8% 14% 6% 7% 3% Companies incl. Cooperatives Handcraft, shop, Self-employee Public & private authorities
    • 9.
      • 1. Introduction to Crédit Agricole Group
      • 2. Key features and figures of France’s farming sector
      • 3. The risk approach of Crédit Agricole
      • 4. An accelerated and integrated solution for the financing of farm machinery: the AGILOR solution
      • 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • 6. Crédit Agricole’s soft commodities hedging services
      • 7. Crédit Agricole’s risk policy and monitoring methodology
      Risk management in agricultural financing Crédit Agricole: a leading partner to an ever-changing world
    • 10. 2. Key features and figures in France’s farming sector 2 .1 . Key features France: Europe’s leading agricultural producer Share of agriculture & food industry in France’s GDP Agriculture, forestry and fishing Food industry 2007 Number of farms Legal forms of farming businesses (2007)
    • 11. 2. Key features and figures in France’s farming sector 2 .1 . Key features (cont’d) Evolution of farming income Evolution of investments in the farming sector Registration of tractors & combine harvesters Farm building construction Farm machinery
    • 12. 2. Key features and figures in France’s farming sector 2.2 . The financing of French farming sector by Crédit Agricole Breakdown by sub-sector Evolution of investments in the French farming sector & new MLT loans (subsidized vs. non-sub.) Evolution of outstanding loan portfolio
      • In 2008, Crédit Agricole’s lending activity in the farming sector amounted to:
      • € 7.1 bn of new MLT loans € 38.1 bn in outstanding loan portfolio (including home loans for farmers)
      • Crédit Agricole provides banking services to 9 out of 10 farmers in France.
    • 13.
      • 1. Introduction to Crédit Agricole Group
      • 2. Key features and figures of France’s farming sector
      • 3. The risk approach of Crédit Agricole
      • 4. An accelerated and integrated solution for the financing of farm machinery: the AGILOR solution
      • 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • 6. Crédit Agricole’s soft commodities hedging services
      • 7. Crédit Agricole’s risk policy and monitoring methodology
      Risk management in agricultural financing Crédit Agricole: a leading partner to an ever-changing world
    • 14. 3. The risk approach of Crédit Agricole Crédit Agricole’s approach is based on the identification and understanding of the farming activity itself from the point of view of farmers / clients. What are the risks and needs of a professional farmer? THE FARMER His family, His partners His employees
      • Work and non work-related health risk
      • Capital risk
      • Tax and financial risk
      • Farm machinery risk
      • Risk of building destruction
      • Phytosanitary and zoosanitoary risk
      • Liquidity risk
      • Yield loss risk
      • Quality loss risk
      • Price risk
      • Risk of excess supply
      • Risk of “bad" investment
      • Input price risk
      • Inventory risk
      • Speculative risk
      • Climate risk
      • Natural disaster risk
      Social risk
      • Complaints from consumers, clients, associations
      Regulatory risk Natural resources (water, land…) Factors of production (farm machinery, livestock, plantations) Cash Sales Investments Input expenses Inventories
      • New standards related to production or sales
    • 15. 3. The risk approach of Crédit Agricole How Crédit Agricole is addressing these needs and risks:
      • Health insurance
      • GAV pro
      • RC, sick-leave insurance
      • Valeur prévoyance
      • ADI
      • PERCO
      • Work and non work-related health risk
      • Capital risk
      • Tax and financial risk
      • Farm machinery risk
      • Risk of building destruction
      • Phytosanitary and zoosanitoary risk
      • Liquidity risk
      • Yield loss risk
      • Quality loss risk
      • Price risk
      • Risk of excess supply
      • Risk of “bad" investment
      • Input price risk
      • Inventory risk
      • Speculative risk
      • Climate risk
      • Natural disaster risk
      Agricultural multiple risk: legal option
      • Complaints from consumers, clients, associations
      Pleinchamp.com
      • Weather insurance
      • Advanced weather services
      • DPA account
      • Vehicle insurance
      • Farm equipment insurance
      • Agricultural multiple risk ins ce
      • Livestock disease & death insurance
      • Prêt option souplesse
      • Prêt calamité
      • DPA savings account
      • Advisory and expertise
      • Precautionary and transaction savings
      > Prêt option souplesse
      • Agricultural multiple risk
      • Soft commodity derivatives
      • Crop insurance
      • Soft commodity derivatives
      • Pleinchamp.com
      • Export insurance
      • International services coverage
    • 16. 3. The risk approach of Crédit Agricole Tailored solutions to improve farmers’ security Risks that may impact farming income Economic hazard World market price volatility Farm income smoothing Climate hazard Crop insurance by Pacifica Climate & economic hazards DPA savings account: tax free contingency plan Soft commodities derivatives Traded by Newedge
    • 17.
      • 1. Introduction to Crédit Agricole Group
      • 2. Key features and figures of France’s farming sector
      • 3. The risk approach of Crédit Agricole
      • 4. An accelerated and integrated solution for the financing of farm machinery: the AGILOR solution
      • 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • 6. Crédit Agricole’s soft commodities hedging services
      • 7. Crédit Agricole’s risk policy and monitoring methodology
      Risk management in agricultural financing Crédit Agricole: a leading partner to an ever-changing world
    • 18. 4. An accelerated and integrated solution for the financing of farm machinery: AGILOR solution
      • 3 actors intervene:
          • Agricultural equipment dealer
          • Crédit Agricole Regional Bank
          • A common client
      • The loan is proposed by the merchant, on behalf of Crédit Agricole.
      • Nationwide standardized tools in Regional Banks:
          • Standard national contract
          • Extranet at the disposal of merchants and shared with all Regional Banks:
            • Simulation, pricing list and contract edition,
            • Immediate online transfer of financing demands,
            • Online follow-up of applications and disbursements
    • 19. 4. An accelerated and integrated solution for the financing of farm machinery: AGILOR solution
      • AGILOR solution advantages:
      • For farmers
          • Simplified procedures: one single request at the merchant’s shop
          • Attractiveness of the pricing
      • For dealers
          • A single counterpart within the Regional Bank: the AGILOR unit
          • Accelerated decision-making process: 48 hours max.
          • Certainty of payment: direct payment to the merchant’s bank account
      • For Crédit Agricole
          • Reinforcing partnerships with machinery merchants
          • Strength to improve / maintain its market share in a more competitive world
          • Competitive advantage due to its capacity to take anticipated decisions on the loan approval process
    • 20. 4. An accelerated and integrated solution for the financing of farm machinery: AGILOR solution
      • AGILOR solution embraces a variety of lending and leasing solutions:
            • Subsidization by the merchant and/or the manufacturer
            • Special agreement with John Deer
            • Leasing solution
    • 21.
      • 1. Introduction to Crédit Agricole Group
      • 2. Key features and figures of France’s farming sector
      • 3. The risk approach of Crédit Agricole
      • 4. An accelerated and integrated solution for the financing of farm machinery: the AGILOR solution
      • 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • 6. Crédit Agricole’s soft commodities hedging services
      • 7. Crédit Agricole’s risk policy and monitoring methodology
      Risk management in agricultural financing Crédit Agricole: a leading partner to an ever-changing world
    • 22. 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • A climate multiple risk insurance which covers 11 events :
          • > For all crops except fruit :
            • - Wind gust
            • - Sandstorm
            • - Storm rain
            • - Excess humidity
            • - Excess snow
          • > For all crops :
            • - Hail
            • - Frost
            • - Storm
            • - Drought
            • - Flood and excess water
      • Risks not covered:
        •  Diseases not caused by a climate risk
        •  Insects, animals damage
        •  Weaknesses of farmers capacity
    • 23. 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • Insurance take out: general principles
      • The entire surface area occupied by a single crop is insured:
          •  Goal : limiting adverse selection
      • Information included in the insurance contract taken from financial statements
          • Goal : based on information that can be checked
      • Limited insurance take-out period
          • Goal : no insurance for a CERTAIN risk
      • Historical data
      • Determination of the guaranteed yield and historical price:
        • Historical yield : (Sum of the last 5 crop yields minus the worst yield minus the highest yield) / 3 Guaranteed yield : historical yield x ( 1 – insurance cost) Average historical price : (Sum of the 3 last prices) / 3
    • 24.
      • Example of damage assessment: soft wheat
      5. Crédit Agricole’s agricultural insurance services: crop insurance Sept – Oct. 2009 2010 Sowing soft wheat July – August June 1st assessment: Acknowledgement of damages Intermediary assessments: control of planting practices Final assessment: Estimation of damages Assessment: Acknowledgement of damages Compensation for re-sowing costs Payment of compensation (30 %] May Coverage period Payment of compensation (70 %) Harvest Drought Storm rains
    • 25. 5. Crédit Agricole’s agricultural insurance services: crop insurance Example of compensation in case of damages Historical data Compensation if damages occur: Due to a drought, the realized crop yield is 6.5 T/ha. The compensation amounts to: (Guaranteed crop yield – realized crop yield) x average historical price x surface area Compensation = (7.2 T/ha – 6.5 T/ha) x 110 €/T x 50 ha Compensation = € 3,850
    • 26.
      • 1. Introduction to Crédit Agricole Group
      • 2. Key features and figures of France’s farming sector
      • 3. The risk approach of Crédit Agricole
      • 4. An accelerated and integrated solution for the financing of farm machinery: the AGILOR solution
      • 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • 6. Crédit Agricole’s soft commodities hedging services
      • 7. Crédit Agricole’s risk policy and monitoring methodology
      Risk management in agricultural financing Crédit Agricole: a leading partner to an ever-changing world
    • 27. 6. Crédit Agricole’s soft commodities hedging services
      • Financial instruments available on soft commodity futures and options markets allow farmers to:
        • Hedge downward price risk through futures contracts
        • Benefit from higher price or hedge downward risk thanks to options contracts
      • Why soft commodity futures and options markets are interesting for farmers:
        • Farmers can fix operating margins by determining selling price up to 16 months in advance.
        • Thus, accessing to soft commodity markets contributes to enhance the financial sustainability of the farm.
      • Correlation between soft commodity futures and options markets and physical markets permits an efficient hedging strategy in a downward or upward case.
      • Why should farmers adopt a hedging strategy:
      • High price volatility
      • +
      • Decreasing operating margin
      • =
      • Operating risk
    • 28. 6. Crédit Agricole’s soft commodities hedging services
      • 3 actors are involved in Crédit Agricole’s soft commodity hedging services :
      • > Crédit Agricole Regional Banks
      • > Newedge Group
        • Crédit Agricole Group – Société Générale joint venture
        • A world leader giving clients the opportunity to access more than 80 global exchanges
        • Functions:
        • Direct transfer of orders through phone to the trading floor in charge of execution
        • Same access for farmers and major actors
        • Assistance and advisory from Newedge experts
        • Daily balance reporting
      • > Agritel
        • Training
    • 29. 6. Crédit Agricole’s soft commodities hedging services
      • Opening of a “MAT” bank account
      • Bank account opening with 3 products:
      • Opening of a bank account exclusively dedicated to futures and options markets
      • Issuance of a compulsory bank guarantee as required by the financial market regulator
      • Loan granting in order to post regulatory collateral and daily margin call
      • 2. Process
      • Meeting with the farmer and his banker
      • Determination of the maximum number of lots that the farmer can subscribe and of the required credit amount and guarantee according crop rotation and yield
      • 2 weeks = delay between the first meeting and the opening of the dedicated bank account
    • 30.
      • 1. Introduction to Crédit Agricole Group
      • 2. Key features and figures of France’s farming sector
      • 3. The risk approach of Crédit Agricole
      • 4. An accelerated and integrated solution for the financing of farm machinery: the AGILOR solution
      • 5. Crédit Agricole’s agricultural insurance services: crop insurance
      • 6. Crédit Agricole’s soft commodities hedging services
      • 7. Crédit Agricole’s risk policy and monitoring methodology
      Risk management in agricultural financing Crédit Agricole: a leading partner to an ever-changing world
    • 31. 7. Crédit Agricole’s risk policy and monitoring methodology 7.1. Guarantee policy
      • The best guarantee:
      • The perfect knowledge of the farmer, his business and his environment
      • For long term loans and large loan amounts:
      • Such as: acquisition of a farm, of land or real estate, hydroponics setup
      • Additional requirements:
        •  Either a personal guarantee
        • Or a mortgage/a pledge on farm machinery as a collateral for all or part of the loan.
      • For short term loans:
      • A crop or livestock warrant
      • From time to time, direct payment from buyers (cooperative or trader) or from the proceeds of the Single Farm System (CAP)
    • 32. 7. Crédit Agricole’s risk policy and monitoring methodology 7.2. Decision process
      •  The delegation of powers policy relies on:
          • 5 decision levels (Branch, Local Branch, Departmental Committee, Enterprises Loan Committee & Regional Bank Board of Directors) according to the loan amount. The entire loan outstanding is taken into account: enterprise, partners, subsidiaries.
          • a Basel II counterparty risk scale 2  : grade alphée (banking behaviour and accounting rating) from 1 (excellent) to 5 (litigation)
          • a banking incident rating scale from 0 to 3 .
      •  Each decision is preceded by an opinion from the previous decision bodies and the branch manager.
    • 33. 7. Crédit Agricole’s risk policy and monitoring methodology 7.2. Decision process: example of delegations of power Main activity: farmers Loan outstanding in € thousand Loan officer or branch manager or regional branch manger Departmental Committee with RB risk opinion Enterprises Loan Committee with RB risk opinion Local Branch Regional Bank Board of Directors with RB risk opinion Local Branch with banking expertise opinion Excellent rating Good rating Poor rating
    • 34. 7. Crédit Agricole’s risk policy and monitoring methodology 7.3. Use of ANADEFI in Regional Banks
        • Loan granting decision, pre-approval
        • Price, margin, return/yield
        • Delegation of powers
        • Guaranty ...
      Basel II Risk Management Corporate governance
        • Alerts et controls
        • Risk tracking
        • Portfolio review
        • Loan recovery & litigation
        • Provisions
      Loan granting Capital requirement
        • Decision on business development, credit, risk/return policies
        • Organize, from granting to loan recovery
        • Target objectives
        • Pilot
        • Financial management decision
      … widely used at the Regional Bank level ANADEFI = Financial sustainability and profitability analysis tool
    • 35. 7. Crédit Agricole’s risk policy and monitoring methodology 7.4. Agri-pro counterparty rating process Financial statements Accounting rating Client information Business liability Savings Personal liability If sole proprietorship Banking rating Counterparty rating EVERY YEAR EVERY MONTH Same for all partners of the risk group
    • 36. 7. Crédit Agricole’s risk policy and monitoring methodology 7.4. Agri-pro counterparty rating process
      • Counterparty rating: evaluation of the creditworthiness of a client. Imperatively taken into account during the loan granting process.
      • Probability of default: measure the default likelihood in 1 year. Expressed in % Same risk group = same counterparty rating = same PD
      Grade PD   Grade PD   Grade PD E F G 0,28 % 0,72 % 1,56 %   H I 3,14 % 6,67 %   J K L V 12,8 % 25,7 % 42,4 % 100 % GOOD CLIENTS DEVELOPMENT  ?   WATCH LIST KEEP UP   ?   WITHDRAWAL ?
    • 37. Evolution of NPL rates on the farming market THANK YOU FOR YOUR ATTENTION