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Expert Meeting on Managing Risks in Financing Agriculture. Overview of General Risks for Financial Institutions. Renate Kloeppinger-Todd Rural Finance Advisor The World Bank Johannesburg, South Africa, April 1-3 2009. Many Risks in Banking. Government policies

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expert meeting on managing risks in financing agriculture

Expert Meeting on Managing Risks in Financing Agriculture

Overview of General Risks for Financial Institutions

Renate Kloeppinger-Todd

Rural Finance Advisor

The World Bank

Johannesburg, South Africa, April 1-3 2009

many risks in banking
Many Risks in Banking
  • Government policies
      • Macro-economic policies leading to high inflation
      • Interest rate caps
      • Interest rate subsidies
      • Forced directed credit for specific sectors or individuals
      • Too high (or low) reserve requirements
      • Political influence on credit decisions
      • Corrupt officials
      • ……..
many risks in banking3
Many Risks in Banking
  • Governance risks
    • Insider lending
    • Untrustworthy management and staff
    • Inappropriate oversight
    • Lack of guidelines and appropriate systems
    • ………
many risks in banking4
Many Risks in Banking
  • Individual client risks
    • Inability to repay loans
    • Unwillingness to repay loans
      • Due to unsuitable loan products
      • Lack of ability to properly evaluate clients and their ventures
      • Lack of appropriate monitoring systems and follow up
      • Risky projects being financed
many risks in banking5
Many Risks in Banking
  • Portfolio risks
    • Portfolio too concentrated in 1-2 sectors
    • Too concentrated in 1-2 geographical areas
    • Too concentrated in 1-2 products (only short-term, long-term)
many risks in banking6
Many Risks in Banking
  • Assets / liabilities mismatch
    • Finance longer-term longs with short-term deposits
    • Finance short-term loans with longer-term liabilities
  • Leverage too high
    • Low reserves in case of crisis
    • Inability to obtain further funds
    • High costs of funding
many risks in banking7
Many Risks in Banking
  • Risks from management and staff
    • Management not properly trained
    • Staff not properly trained
    • Lack of support
    • Lack of good supervision
    • Lack of functioning systems and procedures
    • Bad staff morale
    • “Overworked and underpaid”
    • …….
many risks in banking8
Many Risks in Banking
  • High transaction costs
    • Small loan sizes
    • Inappropriate procedures
    • Insufficient tools and outdated technologies
    • …….