Default Contagion among Credit Types: evidence from Brazilian data

Michel Alexandre, Giovani Brito and Theo Martins

No 476, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: The aim of this paper is to assess the impact of defaulting on one personal credit type on future default on other types of loan. Using Brazilian micro data, we run a logistic regression to estimate the probability of default on a given credit type, by including personal overdue exposure in the other debt types among the explanatory variables. Our results show that this effect is positive and significant, although quantitatively heterogeneous. We also discuss the rationale behind these results. Specifically, it was found that financing credit types (vehicle and real estate financing) contaminate the other credit types more, as defaulting may cause the debtor to lose the financed good. Moreover, riskier loan types (overdraft, non-payroll-educted personal credit, and credit card) are more contaminated by defaults on other credit types, which is explained by the fact that defaulting individuals have limited access to less risky debt types.

Date: 2018-04
New Economics Papers: this item is included in nep-ban and nep-pay
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