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Abstract
As a consequence of rapid structural
change and new investment support scheme agricultural
debts have increased and concentrated heavily in
Finland. In addition, New Basel Accord (Basel II) regulating
the bank business requires more in-depth credit
risk assessment from banks. Therefore, there are both
endogenous and exogenous reasoning for researching
the agricultural credit risks. The purpose of the study is
to find out the factors that affect financial risks in agriculture
as well as possible change in credit risks. Credit
scores depicting the magnitude of financial risk for 664
Finnish FADN farms are calculated and an econometric
model is applied to clarify which farm specific factors
influence the credit score. According to the study increasing
farm size decreases financial risks. Furthermore,
higher yields that also reflect higher professional
skills of the farmer decreases financial risks. In contrast,
increasing debts also increase credit risks. In addition,
cereal farms tend to have higher credit risks than animal
farms. The latter is due to negative profitability development
as a consequence of deteriorated grain prices.
Even though credit risks in general have increased the
number of farms facing substantial financial problems
has not increased. However, given the perpetual economic
development and structural change in Finnish
farming industry the agricultural credit risks will increase.
Hence, the lenders would be condemned to apply
stricter criteria when granting loans and debt will not be
granted to some smaller farms.