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Determining the Probability of Default of Agricultural Loans in a French Bank

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  • Amelie Jouault
  • Allen M. Featherstone

Abstract

Recently, financial institutions have developed improved internal risk rating systems and emphasized the probability of default and loss given default. The default characteristics are studied for 756 loans from a French bank: CIC- Banque SNVB. A binomial logit regression is used to estimate several models of the probability of default of agribusiness loans based on information available at loan origination. The results show that leverage, profitability and liquidity at loan origination are statistically significant indicators of the probability of default. As leverage increases, profitability decreases, or liquidity decreases, the probability of default increases. As the length of loan increases, the probability of default also increases. Finally, it is more accurate to develop a model for each type of collateral (activity). By developing more quantitative credit scoring models,banks may benefit from lower capital requirements while borrowers may see better rates where the risk of loans is appropriately priced.

Suggested Citation

  • Amelie Jouault & Allen M. Featherstone, 2011. "Determining the Probability of Default of Agricultural Loans in a French Bank," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(1), pages 1-1.
    • Handle: RePEc:spt:apfiba:v:1:y:2011:i:1:f:1_1_1
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    1. Ferreira-Filho, Joaquim Bento de Souza & Horridge, Mark, 2010. "Climate Change Impacts on Agriculture and Internal Migrations in Brazil," Conference papers 331926, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. 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.

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