Agricultural Banks Called Safest; Farm Credit System Also Healthy
WASHINGTON -- Agricultural banks are financially sound and should be willing and able to make loans to creditworthy farmers, according to a U.S. Department of Agriculture economist, Douglas Duncan.
"Agriculture banks are currently the safest and most liquid banks in the system," Mr. Duncan said Wednesday during the department's annual Agricultural Outlook Conference.
Commercial banks held $53 billion in agricultural real estate and production loans as of June 30, up 7% from a year before. Less than 2.2% of the loans were nonperforming, he said.
Small Farm Banks in Lead
He said nearly $30 billion of the agricultural loans were held by 4,077 mainly small banks -- specialists in farm loans that "are currently outperforming both small and large nonfarm banks."
The ag banks' average return on equity exceeds 11%, the highest since the beginning of the 1980s, Mr. Duncan added.
"Therefore," he said, "should any short-term adverse events occur in the farm economy, these commercial banks are in good condition to weather the storm."
The Farm Credit System, a nationwide system of federally regulated farmer-owned lending institutions, also is in strong financial condition, Robert Collender, a Department of Agriculture financial economist, said.
"After a decade of adversity, the Farm Credit System enters 1992 in increasingly strong financial condition," he said. Earnings have improved and nonperforming loans have declined, in part because of improved farm earnings.
On problem facing the system and the farm economy, he said, is the restructuring of Eastern European governments and questions about their ability to pay for food imports.