Article2005

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

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

68 citations0/0 files storedReview of Agricultural Economics

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Credit Risk and Financial Regulations Banking stability, regulation, efficiency Financial Distress and Bankruptcy Prediction

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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References

2004The New Basel Capital Accord 2003The empirical relationship between average asset correlation, firm probability of default, and asset size 2005Credit Risk Models and Agricultural Lending 1988Credit Assessment Models for Farm Borrowers: A Logit Analysis

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