Credit Risk Migration and Downgrades Experienced by Agricultural Lenders

Agricultural credit risk migration is examined using loan records gathered from four agricultural lenders. Results indicate that lender risk ratings are much more stable than ratings based on credit scores estimated from financial statements, highlighting the importance played by nonfinancial factors such as management capacity, character, and collateral in assessing credit risk. Additionally, the borrowers risk tier, personal characteristics, and the stage of the business life cycle provide useful information in predicting credit quality downgrades, while the primary agricultural enterprise does not impact the likelihood of a downgrade.