Agric. Econ. - Czech, 2002, 48(9):395-398 | DOI: 10.17221/5343-AGRICECON

The bank approach to a credit obligor - a farm business - in the context of credit risk and capital adequacy

H. Sůvová

Czech National Bank, Prague, Czech Republic

The objective of this paper is to enable a bank's view towards a credit obligor. Banks are subject to a lot of financial risks. Credit risk is the most important one. Banks also have to manage the objective of maximum profit on one hand, the prudential rules on the other hand. Recently, the Bank for International Settlements submitted a new concept of prudential rules (The New Basel Capital Accord) that should be accepted by national regulators and applied from 2006/7. This concept brings relatively strict conditions which should improve bank management of credit risk but which are unpleasant for loaning of small and medium enterprises including agricultural ones that are mostly part of this category. Very important role will be still played by non-market supporting instruments, especially guarantees provided by sovereigns. They can improve the competitiveness of agricultural enterprises in the credit market.

Keywords: financial risk, financial institution, credit risk, banks, banking regulation, capital adequacy, Capital Accord, risk-weighted assets, credit default, internal rating, collateral, guarantees, credit risk mitigation, farm business, small and medium enterprise

Published: September 30, 2002  Show citation