Farm banks are being challenged to find the money to lend for rural development projects such as new businesses, developing a leadership base in the community and infrastructure, including roads and new office buildings, says the American Bankers Association.  Housing, the size of a bank's local market, employment and scarcity in the work force also are besetting rural banks.

ABA surveyed 424 farm banks for information for the 12-month period ending June 30, 1998.  Farm banks are defined as having more than $2.5 million in farm production and farm real estate loans or more than 50% of their loan portfolio in farm lending.

"Because of low deposit growth, farm banks are increasingly turning to governmental sources for funds to support development in their rural communities," said Keith Leggett, ABA senior economist.

Those banks needing sources of funds to loan beyond their deposit sources sought money from federal funds, followed by advances from Federal Home Loan banks and government loan guarantee programs.

Among the banks surveyed, up to 21% reported a decline in their deposit base during the period surveyed.  They attributed the decline to competition from mutual funds and other banks.

Banks with less than $100 million in assets with deposit growth, attributed the growth to new bank branches, consolidation and competitive rates for deposits and certificates of deposit, better customer service and special promotions.

For larger banks with more than $100 million in assets, deposit growth was reported due to expansion into new trade areas and the competitive rates paid for deposits.

Farm banks also said the top three reasons their farm loan customers preferred them to another source of farm lending was the customer's long standing relationship with the bank, the bank's understanding of the farmer's business and the bank's willingness to use government programs.