Agricultural Lending

Liquidity Risk

The nature of agricultural lending can result in higher liquidity risk at some banks, especially smaller banks located in areas where the economy is dominated by one or a few crops, or other farm products. High credit concentrations are usual under those circumstances, and a bank’s liquidity can become strained if crop losses or unfavorable market conditions result in deferral of loan repayments. Longer term liquidity pressure may result at some banks as a result of discontinued farm operations and population migration to urban areas.

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