Thesis (MBA (Business Management))--University of Stellenbosch, 2009. / ENGLISH ABSTRACT: The research report investigates the risk/return relationship in the primary agricultural sector in the
Western Cape from a commercial bank's perspective. The study investigated the correlation
between credit risk and return within a randomly selected portfolio of agricultural borrowers.
Different risk categories were investigated to detennine which category correlates best with return.
The effect of below prime and above prime pricing on return was also investigated.
The study was conducted in the context of the turmoil in financial markets since the beginning of
2008, caused by excessive credit risks. This has led to the need for better regulation in the financial
services industry and better pricing decisions. Factors supporting this need for better regulation
include securitisation of debt, consolidation, globalisation and the systemic risk that banks impose
on the economy. The Basel Capital Accord introduced new regulatory requirements for the banking
industry to ensure more effective management of credit risk. Risk management processes in
agriculture are also subject to the requirements of this accord.
The agricultural sector is characterised by unpredictable climatological conditions, poor
governmental support, low profitability, overcapitalisation and price volatility, which cause this
sector to be especially exposed to credit risk. The credit risk of borrowers within the case study
bank was measured in tenns of a default grade using a behavioural risk rating model. Risk ratings
are used for profitability analysis, risk management and regulatory reporting. These ratings are
assigned during the annual review process, when borrowers are exposed to a business viability
assessment.
Banks incur risk costs when accommodating a borrower's credit risk, which has a negative effect on
the return that the borrower generates for the bank. This emphasises the importance of correlation
between credit risk and pricing and by implication return for sustainable profit margins. The
research results indicated that no correlation exists between credit risk and pricing. This lack of
correlation can be attributed to eontracrual agreements, relationship banking, technological
constraints, asset growth, price sensitivity in the agricultural sector and the nature of the risks in
agriculture.
The study also found that a negative correlation exists between credit risk and return. This can be
attributed to the fact that the higher the credit risk, the more economic capital is required to support
this risk and the more it costs. This implies a lower return on capital. It is recommended that the
risk/return relationship should be improved by reducing credit risk, increasing non-interest income,
ensuring that new borrowers are priced adequately, differentiating the existing portfolio in terms of
value and improving the negotiating skills of bankers. No meaningful conclusion could be drawn with regard to the effect that below prime and above prime pricing have on return. / AFRIKAANSE OPSOMMING: Die studieverslag ondersoek die verwantskap tussen risiko en opbrengs in die primere
landbousektor in die Wes-Kaap vanuit die perspektief van 'n kommersiele bank. Dit ondersoek die
korrelasie tussen kredietrisiko en opbrengs in 'n ewekansige steekproef van landboukliente.
Verskillende risikokategoriee is ondersoek om te bepaal watter kategorie die beste korrelasie tussen
risiko en opbrengs verteenwoordig. Die invloed van beprysing onder en bo prima op opbrengskoers
word ook ondersoek.
Die studie is gedoen in die konteks van die krisis in die finansiele markle sedert die begin van 2008,
wat veroorsaak is deur oornatige kredietrisiko. Dit het die behoefte aan beter regulering in die
finansiiHedienste-industrie asook beter beprysingsbesluite laat ontstaan. Faktore wat hierdie
behoefte aan beter regulering ondersteun, sluit in die verhandelbaarheid van krediet, konsolidasie,
globalisasie en die sistemiese risiko wat banke vir die ekonomie inhou. Die Baselooreenkoms het
nuwe regulatoriese vereistes aan die bankindustrie gesteil om meer effektiewe bestuur van
kredietrisiko te verseker. Risikobestuursprosesse in die landbou is ook onderhewig aan die vereistes
van die Baselooreenkoms.
Die landbousektor word gekenmerk deur onvoorspelbare klimatologiese toestande, swak
regeringsondersteuning, lae winsgewendheid, oorkapitalisering en prysskommelinge, wat
veroorsaak dat hierdie sektor buitengewoon blootgestel is aan kredietrisiko. Die kredietrisiko van
die kliente van die gevallestudiebank is gemeet volgens 'n waarskynlikheidsgradering wat verkry
word vanaf 'n risikomodel wat op gedragspatrone gebaseer is. Risikograderings word gebruik vir
winsgewendheidsontledings, risikobestuur en regulatoriese verslaggewing. Dit word tydens die
jaarlikse hersieningsproses toegeken, wanneer kliente aan 'n lewensvatbaarheidstudie blootgestel
word.
Banke gaan risikokostes aan om die kredietrisiko van kliente te akkommodeer, wat 'n negatiewe
uitwerking het op die opbrengs wat daardie klient vir die bank genereer. Dit beklemtoon die
belangrikheid van korrelasie tussen kredietrisiko en beprysing en by implikasie opbrengs vir
volhoubare winsgrense. Die navorsingsresultate toon dat daar geen korrelasie tussen kredietrisiko
en beprysing bestaan nie. Hierdie gebrek aan korrelasie kan toegeskryf word aan leningskontrakte,
verhoudingsbankwese, tegnologiese beperkings, bategroei, pryssensitiwiteit in die landbousektor en
die aard van die risiko's in die landbou.
Die studie het ook bevind dat daar 'n negatiewe korrelasie is tussen kredietrisiko en opbrengs. Dit
kan toegeskryf word aan die feit dat hoe hoer kredietrisiko is, hoe meer ekonomiese kapitaal vereis
gaan word om hierdie risiko te ondersteun en hoe hoer gaan die risikokostes wees. Dit impliseer 'n
laer opbrengs op kapitaal. Om die verwantskap tussen risiko en opbrengs te verbeter, word
aanbeveel dat kredietrisiko verminder word, nie-rente-inkomste verhoog word, nuwe kliente korrek
beprys word, differensiasie van die bestaande portefeulje plaasvind in terme van waardetoevoeging
en die onderhandelingsvermoe van bankiere verbeter word. Geen betekenisvolle gevolgtrekking
kon gemaak word aangaande die effek wat beprysing onder en bo prima op die opbrengskoers het
nie.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:sun/oai:scholar.sun.ac.za:10019.1/6421 |
| Date | 03 1900 |
| Creators | Benade, Jean |
| Contributors | Ungerer, Marius, University of Stellenbosch. Faculty of Economic and Management Sciences. Graduate School of Business. |
| Publisher | Stellenbosch : University of Stellenbosch |
| Source Sets | South African National ETD Portal |
| Language | en_ZA |
| Detected Language | Unknown |
| Type | Thesis |
| Rights | University of Stellenbosch |
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