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Evaluating Credit Risk Exposure in Agriculture

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Publication date
31/12/2003
Number of Pages
201
Language:
English
Type of Publication:
Studies
Focus Region:
Global
Focus Topic:
Rural Finance / Insurance
Type of Risk:
Market-related
Type of Risk Managment Option:
Risk assessment
Commodity:
Crops
Author
Lyubov Zech
Organization
University of Minnesota

This thesis adapts loan portfolio management tools to agricultural lending and provides guidance on appropriate capital allocation and portfolio management using the tools. A framework is identified for modeling credit risk in agriculture. The components and methodologies of major credit risk models in commercial lending are analyzed in relationship to credit risk in agricultural lending. A CreditRisk+ type model is deemed most suitable for agricultural lending, since the data requirements of that model can be satisfied by the available data and the assumptions are appropriate for modeling credit risk in agriculture. The model is then applied to AgStar Financial Services, ACA, a cooperative agricultural lender, in order to determine how such a lender may adapt this model for portfolio risk analysis and to make capital and portfolio management decisions.