Household and corporate leverage â€“ where do the risks lie and how do we manage?
Daniel Jeongdae Lee
No PB37, MPDD Policy Briefs from United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)
In the past decade, the Asia-Pacific regionâ€™s financial landscape became more diversified, with households having better access to personal loans and mortgages and corporates able to issue bonds, including in offshore markets, and thereby rely relatively less on bank loans. However, as debt levels increased, borrowersâ€™ ability to repay became more sensitive to drops in earnings and shifts in interest rate and exchange rate. Historically, episodes of rapid credit growth were almost always followed by a banking crisis, as in the case of the Asian financial crisis of 1997. While the regionâ€™s financial system today is much stronger and backed by sizeable official reserves, household and corporate leverage has become a key risk factor to the regionâ€™s economic outlook and financial stability.
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