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

25 Pages Posted: 13 Oct 2016

See all articles by Young Il Kim

Young Il Kim

Korea Development Institute (KDI)

Hyoung Chan Kim

NICE CB Research Institute

Joo Hee Yoo

NICE CB Research Institute

Date Written: August 31, 2016

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.

Keywords: Household Debt, Over-Indebtedness, Credit Risk, Stress Test, Financial Stability

JEL Classification: D12, D14, G21

Suggested Citation

Kim, Young Il and Kim, Hyoung Chan and Yoo, Joo Hee, Household Over-Indebtedness and Financial Vulnerability in Korea: Evidence from Credit Bureau Data (August 31, 2016). KDI, Vol. 38(3), p. 53-77, 2016, Available at SSRN: https://ssrn.com/abstract=2851622

Young Il Kim (Contact Author)

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Hyoung Chan Kim

NICE CB Research Institute ( email )

(Yeouido-dong) 4, Gukhoe-daero 74-gil
Yeongdeungpo-gu
Seoul
Korea, Republic of (South Korea)

Joo Hee Yoo

NICE CB Research Institute ( email )

(Yeouido-dong) 4, Gukhoe-daero 74-gil
Yeongdeungpo-gu
Seoul
Korea, Republic of (South Korea)

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