Credit Risk in Agriculture in North Macedonia: Macroeconomic Perspectives

Abstract

Loans play an important role in agriculture development to maintain the farm liquidity through short-term financing of current assets, and to improve farm investment activities to increase agricultural productivity and profitability. Although the state has established various mechanisms to improve access to commercial credits in agriculture, the absorption of credits by this sector is still very low. The weak credit activity of banks in agriculture, among other things, is owed to the high credit risk of banks in financing this sector. Credit risk management is one of the basic activities of the banks to create and maintain a quality loan portfolio that will enable the smooth functioning of the bank. As a result, banks often tighten credit conditions for agricultural producers. Hence, the main aim of the paper is to investigate the credit risk in agriculture from the banks' perspective by i) assessing the exposure of banks to credit risk in agriculture, and ii) investigating banks' behaviour in crediting the agriculture sector. Taking into account the importance of agriculture for the national economy, the results indicate the need to improve lending in agriculture with mechanisms for reducing the bank's credit risk in financing agriculture, especially for smallholders, but also to understand that both sectors, the banking and agricultural sector, are very important for the national economy. If the state provides conditions for the development of the banking sector, it will also provide foundations for ensuring development in agriculture in general.