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Does Leverage Predict Delinquency in Consumer Lending? Evidence from Peru

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  • Walter Cuba

    (Central Reserve Bank of Peru)

Abstract

This paper examines to what extent household leverage—as measured by the debt-to-income (DTI) ratio—predicts delinquency in Peru’s consumer credit market. A model is estimated to assess the relation between delinquency and the DTI ratio. The initial and current DTI ratios are assessed as delinquency predictors. The results confirm that the current DTI ratio is effective for predicting delinquency. This evidence supports its use in financial regulation to improve household credit risk assessment and control.

Suggested Citation

  • Walter Cuba, 2020. "Does Leverage Predict Delinquency in Consumer Lending? Evidence from Peru," IHEID Working Papers 05-2020, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp05-2020
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    More about this item

    Keywords

    Household finance; credit risk; consumer delinquency;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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