Additional Lending Capacity for Farm Credit Canada (FCC)
Increasing the lending capacity of Farm Credit Canada by an additional $5 billion. PBO estimates total net income generated by this measure to be $96 million in 2020-21. The time horizon for this costing is aligned to the Economic and Fiscal Scenario PBO published on March 27, 2020, which only extends to 2020-21. There are likely fiscal impacts from this measure for subsequent years.
Increasing the lending capacity of Farm Credit Canada by an additional $5 billion.
The fiscal impact of this cost estimate reflects the net interest income from issuing these additional loans, while accounting for provisions for credit losses and additional administration expenses.
To complete this cost estimate, PBO used financial data from FCC’s recent annual reports (2015-16 to 2018-19). PBO calculated the average net interest income, less provisions for credit losses and additional administration expenses, as a percentage of outstanding loans receivables, averaged over 4 years.
PBO used this average profitability ratio to calculate the incremental income on the additional $5 billion. PBO assumed that the entire loan amount would be distributed in 2020-21.
PBO estimates total net income generated by this measure to be $96 million in 2020-21.
The time horizon for this costing is aligned to the Economic and Fiscal Scenario PBO published on March 27, 2020, which only extends to 2020-21. There are likely fiscal impacts from this measure for subsequent years.
PBO assumes that the entire $5 billion in additional lending capacity will be issued in 2020-21. Should this not be the case, PBO’s cost estimate will overstate the annual income amount.
PBO also assumes that these additional loans will be issued at market rates. During this period of uncertainty, the additional risk will be reflected in a higher interest rate. However, PBO assumes that this additional risk will also increase the provisions for credit loss. Given the uncertainty of the specifications of these loans, PBO assumes that the additional interest income will be offset by the credit loss provisions. Should this not be the case, it would impact the cost estimate.
Another source of uncertainty arises from the assumption that the average profitability of FCC’s lending program over the past four years would be similar to that of the additional lending capacity created through this policy.
- Estimates are presented on an accrual basis as would appear in the budget and public accounts.
- A positive number implies a deterioration in the budgetary balance (lower revenues or higher spending). A negative number implies an improvement in the budgetary balance (higher revenues or lower spending).
- “-“ = PBO does not expect a financial cost.