Application of credit risk models to agricultural lending

Lyubov Zech, Glenn Pederson

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

A credit risk model suitable for agricultural lenders is identified. The model incorporates sector correlations and is applied to the loan portfolio of an agricultural credit association to create a distribution of loan losses. The distribution is used to derive the lender’s expected and unexpected losses. Results of the analysis indicate that the association is more than adequately capitalized based on 1997S2002 data. Since the capital position of the association is lower than that of most other associations in the Farm Credit System, this raises the issue of overcapitalization in the System.

Original languageEnglish (US)
Pages (from-to)91-106
Number of pages16
JournalAgricultural Finance Review
Volume64
Issue number2
DOIs
StatePublished - Nov 1 2004

Keywords

  • Agriculture
  • Capital adequacy
  • Credit risk models
  • Economic capital
  • Portfolio risk analysis
  • Value-at-risk

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