Pricing farm loans for credit risk

Keith M. Bramma

No 123607, 2000 Conference (44th), January 23-25, 2000, Sydney, Australia from Australian Agricultural and Resource Economics Society

Abstract: This article analyses the risk-return efficiency of limits to which loan pricing accounts for credit risk in the Australian-farm sector. A key issue faced by banks is the trade-off between raising returns through higher risk premiums and the possibility of impairing credit quality. The simulation results suggest that the stochastic efficiency of the size of risk-pricing limits is positively related to volatility of farm income when dynamic relationships are considered. This finding implies that Australian banks should price further across the credit-risk spectrum to farm businesses with relatively volatile incomes compared to those with stable incomes.

Keywords: Agricultural Finance; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 32
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare00:123607

DOI: 10.22004/ag.econ.123607

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