Total agricultural lending by US farm banks remained strong at $98.6 billion in 2020 – a fall of just 1.8% from the year before, according to the American Bankers Association (ABA).
The ABA’s annual Farm Bank Performance Report said the overall fall was mainly a result of a 6.7% decline in agricultural production loans, while government loans also negated the need for farms to seek private financial support.
Loans for farmland which increased 2.1% over the year to $56.7 billion.
The ABA report, which covers the performance of the nation’s 1,642 agricultural banks, found these institutions were crucial in underpinning the survival of rural communities, as well as small- and medium-sized farms, during the Covid-19 pandemic.
Importantly, farm banks supported rural communities via the Paycheck Protection Program (PPP). At the end of 2020, farm banks had 172,818 PPP loans worth $12.7 billion on their balance sheets. The ABA said this was critical to “preserving jobs at local small businesses and providing an important lifeline to the communities they serve”.
Banks also provided more than $45.2 billion in small farm loans ($500,000 or less), including $10.5 billion in micro farm loans ($100,000 or less) last year.
The report found that farm banks have built “strong, high-quality capital reserves throughout 2020 and are well-insulated from risks associated with the agricultural sector”.
Equity capital at farm banks increased 9% to $52.6 billion, while Tier 1 capital increased by $3.6 billion to $48.3 billion.
The ABA’s chief economist, Sayee Srinivasan, said: “While the agricultural sector will continue to face challenges as the economy reopens and recovers from the coronavirus pandemic, the strong asset quality and capital levels of America’s farm banks will help ensure that they continue to provide support to rural communities.”