Analysis of Default Risk of Agricultural Loan by Some Selected Commercial Banks in Osogbo, Osun State, Nigeria

Abstract

This study examines the default risk involved in agricultural loan and determines the effect it has on the level of loan given to farmers in Osogbo agricultural zone of Osun State. Relevant data were collected from
selected commercial banks in the study area through the use of questionnaire. The data collected were analyzed using descriptive statistics, multiple regression as well as risk analytical techniques (default risk and default rate). It was discovered that both the default rate and default risk were high with an average of more than 50% and 1.3 respectively. This has led to the unwillingness of the banks to grant loan for agricultural purposes. It was therefore recommended that banks should give revolving loan to farmers cooperative societies to reduce default rate and loan diversions since members can serve as watch dog to each
other. Banks should also prevent unnecessary delay in loan disbursement to allow for timely use of the loan. Banks should also explore the Agricultural credit guarantee scheme (ACGS) to offset part of the risk in case of default.