Survey-Based Assessment of Household Borrowers' Financial Vulnerability

Mikus Arins, Nadezda Sinenko and Laura Laube
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Mikus Arins: Bank of Latvia
Nadezda Sinenko: Bank of Latvia
Laura Laube: Bank of Latvia

No 2014/01, Discussion Papers from Latvijas Banka

Abstract: This Discussion Paper is an attempt to provide insight into the debt servicing capacity of Latvian households and its sustainability under the impact of different macroeconomic shocks based on individual household data obtained by surveying households with at least one loan for house purchase. To assess the financial situation of these households, changes in the household solvency are modelled under the impact of different economic shocks (shrinking employment income, rising interest rates, loss of jobs) and the obtained results are generalised to the aggregate portfolio of loans granted by Latvian credit institutions to households for house purchase. The results obtained lead to a conclusion that following the financial crisis household solvency is still fragile and possible negative shocks might contribute to higher potential losses of credit institutions. At the same time possible losses to lenders arising from such adverse shocks might be lower than two years ago since the value of collateral has increased with real estate prices moving up, while outstanding loans granted for house purchase have declined.

Keywords: analysis of household solvency; stress tests; sensitivity analysis; financial margin; macroeconomic shock scenario; microdata (search for similar items in EconPapers)
JEL-codes: C15 C35 D14 E21 G21 (search for similar items in EconPapers)
Date: 2014-08-12
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (2)

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https://www.macroeconomics.lv/sites/default/files/dm_1-2014-en.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ltv:dpaper:201401

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