Loan portfolio performance and El Niño, an intervention analysis

Benjamin Collier, Ani Katchova and Jerry R. Skees

Agricultural Finance Review, 2011, vol. 71, issue 1, 98-119

Abstract: Purpose - This paper illustrates that natural disasters can significantly threaten financial institutions serving the poor. The authors test the case of a microfinance institution (MFI) in Northern Peru, where severe El Niño events create catastrophic flooding. Design/methodology/approach - Portfolio‐level, monthly data from January 1994 to October 2008 were examined using an intervention analysis. The paper tested whether the 1997‐1998 El Niño increased problem loans and estimated the magnitude of the effect. Findings - The results indicate El Niño significantly increased problem loans, specifically the level of restructured loans. While restructured loans averaged 0.5 percent of the total loan portfolio before the El Niño, the estimated cumulative effect of El Niño indicates that an additional 3.6 percent of the portfolio value was restructured due to this event. Research limitations/implications - Future research could build on these results by modeling insurance‐type mechanisms for the MFI. Additional research that replicates these analyses in another context would be highly valuable for comparison across natural disasters and financial institutions. Practical implications - The findings demonstrate that the correlated risk exposure of many small borrowers can significantly affect the lender and the importance of considering bank management in assessing disaster risk of a financial institution. Social implications - Lender strategies to minimize losses may require long‐term restructuring that perpetuates the effects of the disaster in the community. Originality/value - This paper may be of particular value to researchers and practitioners hoping to improve the effectiveness and efficiency of MFIs concentrated in regions exposed to natural disaster risk.

Keywords: Financial institutions; Natural disasters; Portfolio investment; Peru (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
Working Paper: Loan Portfolio Performance and El Niño, an Intervention Analysis (2010)
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:eme:afrpps:v:71:y:2011:i:1:p:98-119

DOI: 10.1108/00021461111128183

Access Statistics for this article

Agricultural Finance Review is currently edited by Valentina Hartarska and Denis Nadolnyak

More articles in Agricultural Finance Review from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().