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Determining the Probability of Default and Risk-Rating Class for Loans in the Seventh Farm Credit District Portfolio

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  • Allen M. Featherstone
  • Laura M. Roessler
  • Peter J. Barry

Abstract

Credit risk is the primary risk facing financial institutions. With the proposed guidelines under the New Basel Accord, financial institutions will benefit from better assessing their risks. The probability of default (PD) and risk-rating class is studied for 157,853 loans in the Seventh Farm Credit District Portfolio. Repayment capacity, owner equity, and working capital origination loans are important determinants of the PD. Standard & Poor's (S&P) reported probabilities of default were used to classify each of the loans into a risk-rating class. The average predicted PD is 1.61%, which would fall into the BB— S&P class. Copyright 2006, Oxford University Press.

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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal Review of Agricultural Economics.

Volume (Year): 28 (2006)
Issue (Month): 1 ()
Pages: 4-23

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Handle: RePEc:oup:revage:v:28:y:2006:i:1:p:4-23

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Cited by:
  1. Jarko Fidrmuc & Pavel Ciaian & d'Artis Kancs & Jan Pokrivcak, 2013. "Credit Constraints, Heterogeneous Firms and Loan Defaults," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 53-68, May.
  2. Featherstone, Allen M. & Langemeier, Michael R. & Haverkamp, Kent, 2006. "Credit Quality of Kansas Farms," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35309, Southern Agricultural Economics Association.
  3. Brian C. Briggeman, 2011. "The importance of off-farm income to servicing farm debt," Economic Review, Federal Reserve Bank of Kansas City, issue Q I.
  4. Jouault, Amelie & Featherstone, Allen M., 2006. "Determining the Probability of Default of Agricultural Loans in a French Bank," 2006 Annual meeting, July 23-26, Long Beach, CA 21376, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Featherstone, Allen M. & Wilson, Christine A. & Kastens, Terry L. & Jones, John D., 2005. "Factors Affecting the Agricultural Loan Decision-Making Process," Proceedings: 2005 Agricultural and Rural Finance Markets in Transition,October 3-4, 2005; Minneapolis, Minnesota 132749, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  6. Dressler, Jonathan B. & Stokes, Jeffrey R., 2006. "Mortgage Termination at AgChoice Farm Credit," Proceedings: 2006 Agricultural and Rural Finance Markets in Transition, October 2-3, 2006; Washington, DC 133077, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  7. Jonathan B. Dressler & Jeffrey R. Stokes, 2010. "Survival analysis and mortgage termination at AgChoice ACA," Agricultural Finance Review, Emerald Group Publishing, vol. 70(1), pages 21-36, May.
  8. Durguner, Seda & Barry, Peter J. & Katchova, Ani L., 2006. "Credit Scoring Models: A Comparison between Crop and Livestock Farms," 2006 Annual meeting, July 23-26, Long Beach, CA 21431, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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