Key landowner warns of impending finance squeeze
WINNIPEG — Robert Andjelic is known for owning about 250,000 acres of farmland in Canada, but he also knows commercial real estate.
For years, Andjelic controlled a large inventory of warehouses, offices and industrial buildings in Manitoba.
Andjelic sold his commercial real estate in 2007 and eventually invested in cropland on the Prairies. He still monitors the market for commercial real estate, which, in his view, represents a major risk to the banking system.
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“They (banks) are being pressured by non-performing loans,” said Andjelic, who was recently in Toronto and met with more than 20 lenders.
“I got the feeling that things are changing and changing very rapidly.”
His takeaway from Toronto?
Financial institutions could be scrutinizing their loans in other asset classes more carefully because their commercial real estate portfolio is a mess. Andjelic made the comment during a Jan. 7 webinar, which focused on a potential capital squeeze in lending.
Dan Aberhart of Aberhart Ag Solutions in Brandon organized and hosted the webinar.
Andjelic pointed to high vacancy rates in commercial real estate and what that means for banks that provided the financing for those properties. The bad loans could spill over into other areas of the economy, including farming.
There have been anecdotal reports in Western Canada of young farmers who took on excessive debt and are now struggling to refinance their loans.
This sort of thing could become a trend, where financial institutions attempt to reduce risk and tighten up their lending policies.
In response, farmers should be proactive and understand the financial metrics that bankers care about, Andjelic, founder and chief executive officer of Regina-based Andjelic Land, said.
A good place to start is by speaking with your accountant.
“The accountant will think very similarly to the way the banker thinks, in identifying the (financial) red flags,” he added.
“Then try to address the (red flags) in numbers. … You have to give them the tools to go to bat for you.”
Janice Holzscherer, managing director and head of agricultural banking with Scotiabank, agreed that producers should be proactive and engage with their lenders.
However, she questions the idea that banks are tightening credit and scrutinizing their loan-to-value ratios for agricultural lending.
“I can only speak for ScotiaBank. … We view agriculture very positively. Right up to the top of the bank,” Holzscherer, who also participated in the Jan. 7 webinar, said.
“We’re certainly not seeing any pressure to (reduce) loan to value.”
Like Holzscherer, Andjelic is bullish on agriculture and future opportunities for food production in Canada.
However, he’s bearish on the broader economy and is predicting a global downturn.
“The economy is going to be in a very, very tough position … most likely a worldwide recession” he said.
“The future is great for agriculture, but we have to get through this soft patch.”
Andjelic is concerned for a number of reasons, including:
- the likelihood of a European Union breakup
- a regional banking crisis in the U.S.
- the possibility of high unemployment
Then, there’s public spending and massive debt payments facing governments.
“These economic problems are because of the excesses, and we all participated. We’ve all benefitted to some degree,” Andjelic said.
“Now it’s time to pay the piper.”
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