Who Borrows and Who May Not Repay?

Alena Bičáková, Zuzana Prelcova and Renata Pašaličová

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: We use Household Budget Survey data to analyze the evolution of the household credit market in the Czech Republic over the period 2000–2008. We next merge our data with the Statistics on Income and Living Conditions in 2005–2008, in order to test the validity of the standard debt burden measure as a predictor of default. We propose an alternative indicator – the adjusted debt burden (ADB), defined as the ratio of loan repayments to discretionary income, constructed as net income minus the living minimum, which turns out to be a superior predictor of default risk. Limited by the data, we use a fairly broad concept of default, namely, the inability to make loan repayments on time. Based on the distribution of default risk across the levels of the adjusted debt burden, we suggest that a 30% ADB threshold should be used as the definition of overindebtedness, with an average default risk of 17%. Finally, we show that overindebtedness and local economic shocks are closely related, suggesting that default risk should be always considered in the context of regional economic conditions.

Keywords: household credit; debt burden; repayment; regional default risk (search for similar items in EconPapers)
JEL-codes: D12 D14 G21 R29 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-rmg, nep-tra and nep-ure
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Working Paper: Who Borrows and Who May Not Repay? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp443

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