Credit risk of agricultural borrowers

Credit risk is the potential that a bank borrower or counterparty will fail to meet its obligation in accordance with agreed term. This paper explores how the impact of borrower characteristics on default probability changes over the life of a loan. It is therefore the objective of the research is to identify the factors which influence the repayment of loans borrowed by the farmers at a cooperative bank. In this study agricultural borrowers’ of a cooperative bank is taken as the samples. Credit risk of the borrowers is highly related to total land owned, cultivated land and the age. This risk is coupled with tenure and the amount availed for the loan. These factors are extremely diverse including income, type of crop, type of loan and security type of the land holding. This study explores the credit risk of the borrowers of the bank and the probability of loan going default and endowers to identify factors contributing to default which limits from payment. The study was carried out by collecting customers’ profile of the bank records. The gathered data was analysed using descriptive and logistic regression analyses which revealed the relationship of demographic factors and the probability of default.