Who Borrows and Who May Not Repay?

Alena Bičáková, Zuzana Prelcova and Renata Pašaličová

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: In this paper we use Household Budget Survey data to analyze the evolution of the household credit market in the Czech Republic over the period 2000–2008. While the share of households that borrow remained stable and below 40%, the amount of debt outstanding increased. We estimate a series of models of the determinants of borrowing. We next merge our data with the Statistics on Income and Living Conditions in 2005–2008, which contain direct information on repayment behavior, 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 (the minimum cost of living for a given household composition as set by the Czech Statistical Office), 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: Debt burden; household credit; regional default risk; repayment. (search for similar items in EconPapers)
JEL-codes: D12 D14 G21 R29 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-ban, nep-rmg, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.cnb.cz/export/sites/cnb/en/economic-re ... wp/cnbwp_2010_10.pdf

Related works:
Working Paper: Who Borrows and Who May Not Repay? (2011)
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:cnb:wpaper:2010/10

Access Statistics for this paper

More papers in Working Papers from Czech National Bank, Research and Statistics Department Contact information at EDIRC.
Bibliographic data for series maintained by Tomas Karhanek ().