An appraisal of agricultural loan default rates in rural banking: a case study of Access Bank Nigeria
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Background of the Study
Agricultural loan default rates are a critical indicator of financial health within rural banking. Access Bank Nigeria has experienced fluctuations in default rates within its agricultural loan portfolio, prompting a need to closely examine the underlying causes. Factors such as seasonal income variability, poor risk assessment, inadequate borrower support, and external economic shocks contribute to default rates in rural agricultural finance (Oluseyi, 2023). The bank has implemented several strategies, including flexible repayment schedules, loan restructuring options, and targeted financial education, to mitigate these risks and reduce defaults. These measures are intended to improve the alignment of loan terms with the agricultural production cycle, thereby enhancing repayment performance and sustaining credit access for rural farmers (Akinola, 2024).
Despite these efforts, default rates remain a significant challenge, adversely affecting the bank’s overall loan portfolio and financial stability. The complexity of the agricultural environment, characterized by unpredictable weather, market volatility, and fluctuating crop yields, makes accurate risk assessment difficult. Furthermore, gaps in post-loan support and insufficient monitoring of borrower performance contribute to increased defaults (Ibrahim, 2025). This study seeks to appraise the factors influencing agricultural loan default rates at Access Bank Nigeria and to identify targeted strategies that can reduce defaults and improve overall credit performance.
Statement of the Problem
Although Access Bank Nigeria has implemented various risk mitigation strategies, agricultural loan default rates in rural areas remain unacceptably high. Borrowers frequently miss repayment deadlines due to the inherent unpredictability of agricultural income, driven by seasonal variations and external shocks such as adverse weather conditions (Oluseyi, 2023). Additionally, inadequate borrower education and insufficient monitoring systems exacerbate the problem, leading to delayed interventions and loan restructurings. These issues are compounded by weaknesses in initial risk assessment models that do not fully capture the variability of rural income streams, thereby increasing the likelihood of defaults (Akinola, 2024). Consequently, the bank’s financial performance and its ability to extend further credit are adversely affected. This study aims to identify and analyze the key factors contributing to high default rates, providing a basis for the development of more effective risk management and borrower support mechanisms (Ibrahim, 2025).
Objectives of the Study
• To assess the factors contributing to agricultural loan defaults in rural banking.
• To evaluate the effectiveness of current risk mitigation and support strategies.
• To propose recommendations for reducing default rates and improving loan performance.
Research Questions
• What are the primary factors leading to high default rates in agricultural loans?
• How effective are current mitigation strategies in reducing defaults?
• What improvements can be made to better align loan terms with rural income cycles?
Research Hypotheses
• H1: Seasonal income variability significantly increases agricultural loan default rates.
• H2: Inadequate borrower support contributes to higher defaults.
• H3: Improved risk assessment and monitoring reduce the incidence of defaults.
Scope and Limitations of the Study
This study focuses on Access Bank Nigeria’s rural agricultural loan portfolio. Data are obtained from bank default records, borrower interviews, and risk assessment reports. Limitations include regional economic variability and potential data quality issues.
Definitions of Terms
• Loan Default Rates: The percentage of loans on which borrowers fail to meet scheduled repayments.
• Agricultural Loans: Financial products designed to support agricultural production.
• Risk Mitigation: Strategies used to reduce the likelihood and impact of loan defaults.
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