Farm Bankers Foresee Improving Credit Quality, ABA Survey Finds

Agricultural bankers expect stronger loan portfolios, higher repayment rates, and fewer delinquencies in the second half, according to the preliminary results of an American Bankers Association survey.

Predictions of improved loan quality topped those of deterioration by 12 percentage points. Optimists prevailed by about 13 points on repayment rates, and by 11 points on 30-day delinquency.

"Clearly the bankers' outlook is good," said Keith Leggett, an ABA economist compiling the results. About 200 bankers have responded to the survey. Mr. Leggett hopes to ultimately collect 500 responses.

The solid harvest expected this fall is playing a role in the bankers' positive outlook for late 1997.

Economists with several Federal Reserve districts and the Department of Agriculture agree that with a few localized exceptions 1997 should yield good grain crops and better-than-average returns for cattle ranchers.

Denny Everson, senior vice president at First Dakota National Bank in Yankton, S.D., said the national forecast holds for grain farmers in his area. Mr. Everson, who manages the bank's agricultural lending division, said farmers in southeastern South Dakota are expected to bring in bumper crops of corn and soybeans.

First Dakota National's return on average assets sank to 1.35% last year, from 1.50% in 1995, after disappointing corn, soybean, and other grain yields.

This year, however, the outlook is rosier. "We are as optimistic this year as we ever have been," Mr. Everson said.

If farmers have as good a year as forecast, Mr. Everson said, he expects many of them to invest in new equipment or pay off some loans.

"Our really good managers try to reduce debt whenever they have extra cash," he said.

However, Kevin Olson at Grundy County National Bank in Morris, Ill., described this year's harvest as "average."

"I think we'll be O.K.," said Mr. Olson, a vice president at the bank. "Hopefully their operations are built so they can sustain an average year."

The bankers said they will not be able to accurately judge the effect of this year's harvest until early next year, when borrowers renew their lines of credit.

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