MARKET SHARE DETERMINANTS FOR COMMERCIAL BANKS LENDING TO AGRICULTURE

This study has tried to investigate into the factors that go in to operation when commercial banks have to make their agricultural loan portfolio decision. Several factors were identified and an investigation was necessary to indentify the most important variables. The factor analysis technique was employed in an effort to group factors which were related by description together. Factor analysis though had some interesting results was dismissed because the factor groups failed to explain the behavior of market shares. It was decided that market share be decomposed into its Components of Change. After the decomposition, three components of change were identified. The percentage change in agricultural loan to deposit ratio, the percentage in commercial bank deposit and the percentage change in the total agricultural loans were the component of change identified. An effort was also made to identify the factors that influenced change in the three components. Multiple regression method was employed. The conceptual framework identified risk as the most important consideration when banks are deciding on loan portfolio. If the risk involved tending to the agriculture sector was the same as that involved in non-farm businesses, banks would be indifferent in their loan portfolio choice because the returns would be the same. The risk element varies between states and hence, variation in banks market shares. The regression results did not however, highlight the risk variable. Business atmosphere within a given state was also an important influence on banks loan decision.

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