Modelling probability of default and optimal PTI level by using a household survey

Tamás Balás (), Adam Banai and Zsuzsanna Hosszú ()
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Tamás Balás: Magyar Nemzeti Bank (MNB), Hungary.
Zsuzsanna Hosszú: Magyar Nemzeti Bank (MNB), Hungary

Acta Oeconomica, 2015, vol. 65, issue 2, 183-209

Abstract: The risks of household lending are still a major issue in Hungarian banking. The proportion of non-performing loans is rising continuously. We constructed a model to find those factors which have significant effect on the probability of default of households’ mortgages. We also used this model to calibrate the optimal level of household mortgages’ payment-to-income ratios, which is important from a regulatory point of view. Our results show that the denomination of the loan and the indebtedness of the household are crucial factors in the performance of the loan. We also show that loans contracted via agents are riskier than others. The results carry two important messages from a regulatory perspective. Prescribing the same payment-to-income (PTI) ratios for HUF and FX loans may be unnecessarily restrictive for the former and excessively permissive for the latter. The uniform regulation of households with different income levels may also lead to undesired anomalies.

Keywords: FX lending; probability of default; payment-to-income ratio; bank regulation (search for similar items in EconPapers)
JEL-codes: E58 G01 G21 (search for similar items in EconPapers)
Date: 2015
Note: We are grateful to the two anonymous reviewers for their valuable comments and suggestions.
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Citations: View citations in EconPapers (2)

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