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Household Over-indebtedness and Financial Vulnerability in Korea: Evidence from Credit Bureau Data

KIM, Young Il / KIM, HyoungChan / Yoo, JooHee

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Abstract

Financial soundness in the household sector matters for financial

stability and for the real economy. The level of household debt in

Korea raises concern about the financial soundness of the household

sector due to its size, growth rate and quality. Against this backdrop,

we assess the financial vulnerability of borrowers based on an

analysis of credit bureau (CB) data, in which the actual credit

activities of most individuals are recorded at a high frequency in

Korea. We construct over-indebtedness indicators from the CB data

and then assess the predictability of forthcoming defaults. Based on

the over-indebtedness indicators, we show how borrowers are

distributed in terms of over-indebtedness and how the over-indebted

differ from average borrowers in terms of their characteristics.

Furthermore, we show how the aggregate credit risk in the household

sector would change under macroeconomic distress by analyzing how

each borrower’s credit quality would be affected by adverse shocks.

The findings of this paper may contribute to assessing household debt

vulnerability and to enhancing regulatory and supervisory practices

for financial stability.

Issue Date
2016-08
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