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

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 Banking –Governance risks Insider lending Untrustworthy management and staff Inappropriate oversight Lack of guidelines and appropriate systems ………

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 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 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 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Many Risks in Banking –High transaction costs Small loan sizes Inappropriate procedures Insufficient tools and outdated technologies …….