An analysis of the financial vulnerability of households borrowing from banks and savings banks in the Macedonian economy

The main objective of this paper is to develop a framework for household financial vulnerability in the Macedonian economy. To this end, a methodology has been introduced based on the liquidity approach of analysing vulnerability, and the debt service-to-income (DSTI) indicator and the relative financial margin have been established as measures of vulnerability. The vulnerability thresholds for both indicators have been determined based on economic literature and regulation. Household debt-at-risk is calculated based on the credit exposure of households that exceed the vulnerability thresholds for the measures, and expected credit losses are also calculated by estimating the probability of default. Household financial resilience is analysed by imposing macroeconomic shocks, including a hypothetical income reduction, job loss, a rise in the cost of living, an increase in interest rates, and an unfavourable exchange rate change. The results of the empirical analysis indicate that the realisation of the assumed shocks, depending on their severity, would have certain effects on the solvency of the Macedonian banking system.