The Anatomy of Household Debt Build Up in Croatia: Enlisting More Creditworthy Households or Relaxing Lending Standards&quest

Ivana Herceg and Vedran Šošić
Additional contact information
Ivana Herceg: Croatian National Bank, Trg hrvatskih velikana 3, 10002, Zagreb, Croatia. E-mails: ivana.herceg@hnb.hr, vedran.sosic@hnb.hr
Vedran Šošić: Croatian National Bank, Trg hrvatskih velikana 3, 10002, Zagreb, Croatia. E-mails: ivana.herceg@hnb.hr, vedran.sosic@hnb.hr

Comparative Economic Studies, 2011, vol. 53, issue 2, 199-221

Abstract: The goal of this paper is to determine whether the rapid accumulation of household debt in Croatia between 2005 and 2008 was driven by the improving creditworthiness of borrowers or their willingness to carry more debt due to optimistic expectations and the relaxation of banks’ lending standards. A new approach is proposed which uses decomposition techniques previously employed in the analysis of wage gaps to capture risks related to the dynamics of household lending. We find that improved creditworthiness can explain only a minor part of the rise in the debt of Croatian households over the observed period (2005–2008). It was, rather, more lenient lending standards coupled with households’ willingness to borrow in increasing amounts on the back of optimistic expectations that had a prominent role in the expansion of household debt. The role of more lenient lending standards was especially pronounced in the case of highly indebted households, whose creditworthiness improved only very slightly or even deteriorated. Also, banks provided access to credit to more risky segments of the population as the creditworthiness of indebted households deteriorated relative to the general population.

Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.palgrave-journals.com/ces/journal/v53/n2/pdf/ces201114a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/ces/journal/v53/n2/full/ces201114a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:compes:v:53:y:2011:i:2:p:199-221

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41294/PS2

Access Statistics for this article

Comparative Economic Studies is currently edited by Nauro Campos

More articles in Comparative Economic Studies from Palgrave Macmillan, Association for Comparative Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().