Prudent farmers hold back Elders Rural result 31 July 2009 4:49PM John Kavanagh Elders Rural Bank managed less than one per cent growth in its loan book in the year to June. With good weather and commodity prices and lower input costs, farmers have enjoyed strong cash flow, but they have used it to pay down debt.Elders Rural managing director Paul Hutchinson said the general economic climate was another factor; farmers held back from making capital investments.Hutchinson said: "After a good season they might look at buying the farm next door but that has not happened this time."Hutchinson is budgeting for stronger demand for agri-finance in the current year and expects growth in loans under management to grow by eight to 10 per cent.Despite the weak demand for finance, Elders Rural produced a 9.7 per cent increase in earnings for the 2008/09 year. Yesterday it reported net profit of $45.1 million, up from $41.1 million in 2007/08.The net interest margin on the $3.6 billion loan portfolio went up from 2.05 to 2.07 per cent.Non-performing loans increased from 0.33 to 0.62 per cent (net non-performing loans to gross loans). The increase was due to a single account.The bank had strong deposit flow, and at June 30 total deposits of $3.7 billion exceeded loans.Elders Rural has pursued a marketing strategy of picking up deposits in the cities, using online and Elders Real Estate channels.Hutchinson said the strategy was working, with 43 per cent of deposits coming from the cities during the year.The bank will change its name to Rural Bank next month, reflecting a shift in the joint venture shareholding. Futuris has sold some of its stake to Bendigo & Adelaide, which now holds 60 per cent of the bank.Hutchinson said: "Our relationship with Elders does not change but we will be opening up new distribution channels. We will be using Bendigo & Adelaide's expanded community branch network."Futuris, meanwhile, is likely to announce the sale today of its insurance arm to QBE, according to reports in The Australian and the Financial Review.