Farm loan portfolios at the nation's rural-area banks grew for a fifth straight year in 1997, according to an analysis by the American Bankers Association.
At Dec. 31, total farm loans at the 3,095 farm banks had reached $36.7 billion, a 13.6% jump from a year earlier. And with the surge in loan demand, earnings at those banks soared 10.9% in 1997, to $2.1 billion.
"The economy is doing well," said Keith Leggett, senior economist at the ABA. "Farm banks' portfolios are healthy, and loan demand is increasing."
Farm banks are defined as those with less than $500 million of assets and a farm-to-total-loan ratio exceeding the industry average by an amount determined by the Federal Reserve.
Banks of all sizes held $64 billion of farm loans at Dec. 31, up from $61 billion a year earlier. Factoring in loans made by nonbanks increased the total for the fourth consecutive year, to $162.2 billion.
Mr. Leggett said he expects the trend to continue this year. However, he said, the continuing economic crisis in Asia could start to hurt U.S. farms this year and lead to lesser loan demand in 1999.
Concern is already mounting in California. Kathy Ross, executive vice president of Union Bank of California, told members of the California Bankers Association recently that the bank has terminated some contracts with citrus farmers. She attributed this caution to oversupply, the crisis in Asia, and lingering effects of the El Nino weather pattern that ravaged the state last winter.
Liquidity is another concern. Roughly half the farm banks reported in 1997 that deposits were not growing fast enough to fund loan demand, Mr. Leggett said.
But overall, the health of the nation's farm banks appeared strong. According to the ABA analysis, total assets at farm banks grew 8.4% in 1997, to $172 billion. And the average return on those assets improved slightly, to 1.25% from 1.22%.
Matt Andrejczak contributed to this article.