DSR and Household debt delinquency: evidence from South Korea

This study examines the debt service ratio (DSR) as a predictor of household financial distress in South Korea, with a particular focus on identifying the threshold at which delinquency risk rises sharply. Leveraging household-level microdata and a multilevel Bayesian threshold regression model, we estimate the tipping point in the DSR – default relationship while accounting for household heterogeneity. Our findings indicate that the critical DSR threshold falls below current regulatory benchmarks, suggesting that many households may experience financial strain at lower debt levels than anticipated by policymakers. Notably, we find substantial variation by employment type: temporary and self-employed workers exhibit significantly higher vulnerability, even at moderate DSRs. These results highlight the limitations of uniform regulatory caps and support the need for differentiated, evidence-based lending standards. By offering the first data-driven estimate of DSR thresholds in Korea, this study advances the academic understanding of household credit risk and informs ongoing macroprudential policy development.