Farm loan delinquencies and chargeoffs rose last year at California banks, researchers reported, and bankers and economists are blaming El Nino weather patterns and falling Asian demand.
A new report by Veribanc, a Wakefield, Mass., re-search firm, indicates that delinquent farm loans in California increased by more than one-third in 1997, to 0.93% of all agricultural loans. That's up from 0.67% the year before, according to Veribanc's analysis of Federal Reserve data.
Net chargeoffs of farm loans also rose last year, increasing 44% from the 1996 level. Chargeoffs represented 0.49% of all agricultural loans in 1997, compared with 0.35% the year before, according to Veribanc.
Warren Heller, research director at Veribanc, said the increase in farm loan delinquencies and chargeoffs is not an indicator of widespread failures.
"A 1% delinquency rate doesn't throw you on your back," he said. But he added, "it was a surprise to us because California is improving otherwise."
California is not the only state where farm loan delinquencies are increasing. Banks in Washington and Tennessee also reported higher rates of troubled farm loans in 1997, Mr. Heller said, but at levels much lower than in California.
Keith Leggett, an economist at the American Bankers Association, blamed the rise in California delinquencies on bad weather and Asia's economic crisis, adding that the damage may not be complete.
While Mr. Leggett said he expects farmers will see some relief from El Nino-prompted flooding and other natural calamities this month, low demand for exports to Asia may continue throughout this year and into 1999.
"California is a major exporter, so the weakening of agricultural export demand will really hurt them," he said.
Bankers hit by increased delinquencies and chargeoffs said they were not overly concerned.
"It doesn't take but one or two loans that don't perform to get these results," said Gary Wright, president and chief executive officer at Stockman's Bank of Commerce, Elk Grove, Calif.
Stockman's, a $100 million-asset bank, reported an 83% rise in its delinquency rate from 1996 to 1997. But the bank only charged off $11,000 of its $12.96 million agricultural loan total last year.
Something similar was true at County Bank, Merced, Calif., where chargeoffs increased but only to 0.30% of its total of $42.5 million in agricultural loans.
Tom Hawker, president and chief executive officer of County Bank, said local dairy farmers and almond growers had been hurt by El Nino weather. However, he said, that's no reason to stop making farm loans.
"There is always potential for ag loans to go bad," he said. "But ag lending has always been a solid performer for us."