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Survey-Based Assessment of Household Borrowers' Financial Vulnerability

Author

Listed:
  • Mikus Arins

    (Bank of Latvia)

  • Nadezda Sinenko

    (Bank of Latvia)

  • Laura Laube

    (Bank of Latvia)

Abstract

This Discussion Paper is an attempt to provide insight into the debt servicing capacity of Latvian households and its sustainability under the impact of different macroeconomic shocks based on individual household data obtained by surveying households with at least one loan for house purchase. To assess the financial situation of these households, changes in the household solvency are modelled under the impact of different economic shocks (shrinking employment income, rising interest rates, loss of jobs) and the obtained results are generalised to the aggregate portfolio of loans granted by Latvian credit institutions to households for house purchase. The results obtained lead to a conclusion that following the financial crisis household solvency is still fragile and possible negative shocks might contribute to higher potential losses of credit institutions. At the same time possible losses to lenders arising from such adverse shocks might be lower than two years ago since the value of collateral has increased with real estate prices moving up, while outstanding loans granted for house purchase have declined.

Suggested Citation

  • Mikus Arins & Nadezda Sinenko & Laura Laube, 2014. "Survey-Based Assessment of Household Borrowers' Financial Vulnerability," Discussion Papers 2014/01, Latvijas Banka.
  • Handle: RePEc:ltv:dpaper:201401
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    References listed on IDEAS

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    1. Ramdane Djoudad, 2011. "A framework to assess vulnerabilities arising from household indebtedness using microdata," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Initiatives to address data gaps revealed by the financial crisis", Basel, 25-26 August 2010, volume 34, pages 151-168, Bank for International Settlements.
    2. Marcelo Fuenzalida & Jaime Ruiz-Tagle, 2011. "Household Financial Vulnerability," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.),Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 10, pages 299-326, Central Bank of Chile.
    3. Blaise Gadanecz & Kaushik Jayaram, 2009. "Measures of financial stability - a review," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring financial innovation and its impact", Basel, 26-27 August 2008, volume 31, pages 365-380, Bank for International Settlements.
    4. Orla May & Merxe Tudela, 2005. "When is mortgage indebtedness a financial burden to British households? A dynamic probit approach," Bank of England working papers 277, Bank of England.
    5. Herrala, Risto & Kauko, Karlo, 2007. "Household loan loss risk in Finland : estimations and simulations with micro data," Research Discussion Papers 5/2007, Bank of Finland.
    6. Ms. Deniz O Igan & Mr. Heedon Kang, 2011. "Do Loan-To-Value and Debt-To-Income Limits Work? Evidence From Korea," IMF Working Papers 2011/297, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Ludmila Fadejeva & Janis Lapins & Liva Zorgenfreija, 2018. "Results of the Household Finance and Consumption Survey in Latvia," Discussion Papers 2018/01, Latvijas Banka.

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    More about this item

    Keywords

    analysis of household solvency; stress tests; sensitivity analysis; financial margin; macroeconomic shock scenario; microdata;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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