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

Applied Economics Journal

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Title Credit Scoring System for Managing Risk in Agricultural Loan Portfolio of the Thai Rural Financial Market
 
Creator Somboon, Songkran; Faculty of Economics, Maejo University, Chiang Mai, Thailand, 50290
 
Subject logit model, credit risk management,credit scoring,optimal returns, agricultural loan portfolio
C53, G32,G11, Q14
 
Description 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 resultsverify 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 andoptimal returns in agricultural loan portfolio.
 
Publisher The Center for Applied Economics Research (CAER)
 
Contributor —
 
Date 2016-05-20
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.tci-thaijo.org/index.php/AEJ/article/view/57251
 
Source Applied Economics Journal; Vol 22, No 1 (2015): June; 27-50
0858-9291
 
Relation http://www.tci-thaijo.org/index.php/AEJ/article/view/57251/47458
 
Rights Copyright (c) 2016 Applied Economics Journal
http://creativecommons.org/licenses/by-nc-nd/4.0