Credit Scoring System for Managing Risk in Agricultural Loan Portfolio of the Thai Rural Financial Market

Songkran Somboon ()
Additional contact information
Songkran Somboon: Faculty of Economics, Maejo University, Chiang Mai, Thailand, 50290

Applied Economics Journal, 2015, vol. 22, issue 1, 27-50

Abstract: The main objective of this study is to develop a credit risk management instrument of the Bank for Agriculture and Agricultural Cooperatives, an important organization of the Thai rural financial market. The paper highlights the application of the credit scoring system in managing risk in agricultural lending activities. The logit model is first developed to identify the probability of default from the economical and geographical risk factors. The results verify the payment history, collateral types, loan to value ratio, deficit irrigation, saving, land suitability, natural disasters (flood and drought) and income to expense ratio in the household are important factors in determining of the probability of default in the farmers lending. The model is tested for reliability and validity of the prediction power in discriminating the debtors. Results from the logit model are subsequently employed to formulate the credit scoring system and internal credit risk rating system with reference to the Basel II criteria. The results show how agricultural exposures can be managed on a portfolio basis which will enable the bank to diversify the risk in each of portfolio share, determine the interest rate on the basis of risk, and analyze for the minimum capital requirements and optimal returns in agricultural loan portfolio.

Keywords: logit model; credit risk management; credit scoring; optimal returns; agricultural loan portfolio (search for similar items in EconPapers)
JEL-codes: C53 G11 G32 Q14 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://journal.eco.ku.ac.th/upload/document/thai/20150922105822.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aej:apecjn:v:22:y:2015:i:1:p:27-50

Access Statistics for this article

Applied Economics Journal is currently edited by Kampanat Pensupar

More articles in Applied Economics Journal from Kasetsart University, Faculty of Economics, Center for Applied Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Chatrat Hemmawat ().