The Farm Lending Portfolio Management Instrument in the Agricultural Financial Institution in Thailand: Trade - off between Outreach and Efficiency
Keywords:
farm lending portfolio, small farmer, risk adjusted return on capital, expected lossAbstract
The main objective of this study is to develop the farm lending portfolio management instrument in order to analyze for the optimum level of the trade-off between outreach to the small farmer and efficiency of the farm lending portfolio in the Bank for Agriculture and Agricultural Cooperatives (BAAC.), an important agricultural financial institution in Thailand. The logit model is first developed to identify the probability of default from the risk factors. The results from the logit model are subsequently employed to formulate the probability of default equation, expected loss model, economic capital model, risk and capital charge adjusted of the loan pricing model and internal rating model including the average RAROC of the portfolio in each of rating. The expected profit before expected loss equation and the average of the risk adjusted return on capital equation are developed to analyze the optimum level. The equations can be identified the maximum level of the expected profit before expected loss of the portfolio and optimum level of the trade-off between outreach to the small farmer and efficiency of the farm lending portfolio. The different from the maximum level to the optimum level can be calculated the size of the trade-off. The BAAC can be employed to the optimum level of the trade-off managing the farm lending portfolio and determine the optimum of the interest rate structure in the portfolio.
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