The Financing of the Agricultural Enterprises in Hungary Between 2008 and 2011

The sources of agricultural financing

1. 
   Direct bank financing
   

The first and most common form of agricultural financing is direct bank financing. In order to put the agriculture

into an effective orbit, and mainly for being competitive with the foreign competitors appearing on the Hungarian land market, it is essential a banking system, which is able to supply credit capital for the full range of the sector, namely for the farms of different sizes (Lentner, 2014). For the commercial banks will become more and more attractive to finance agricultural enterprises, because more and more funding scheme appears, which the risk of financial institutions almost completely eliminates. While previously only the business activities served as ‘collateral’ for bank overdrafts and liquidity credits, now temporary sources are granted to the debit of such as fix called cash flows, as area-based subsidies or public warehouse credit to the debit of goods in a public warehouse.

Among the liabilities of agricultural entrepreneurs credits play an important role. It is generally true for the financing of the Hungarian economy, such as financing also agriculture that sources are provided not from the direct capital market but through the banking system, from the credit market. In addition to the leasing the most important agricultural lending channels are financing a verticum, a transaction, a project or global financing.
However, the role of the direct bank financing has decreased for the economic crisis. The main reasons of these can be summed up as follows:

• 
  Also the economic crisis reduced the volume of agricultural lending, especially the investment and development credits
  
• 
  In spite of the several preferential credit facilities banks use the simplest methods for risk management, so they settle high risk premiums and ask for unrealistic collateral from the actors of the sector. (Bencze. Sz; Kiss I; 2012)
  
• 
  In the domestic agriculture from 2000 the aim is to replace the short term credits and credits with market priced interest rates with long term credits and with credits with interest rate subsidy. As a result of the program the vast majority of the domestic agricultural credits became interest rate subsided in the period before the EU-accession. As the Common Agricultural Policy (CAP) doesn’t recognize the interest subsidy as a legitimate supporting tool, after the EU-accession credits with interest rate subsidy cannot be granted, so the more than 1600 million EUR stock of the credits in 2004 decreased to 510 million EUR for 2008 and to less than 250 million EUR to 2009. (AKI 2010).