Stress-Testing Croatian Households with Debt : Implications for Financial Stability
The purpose of this paper is to stress test the resilience of Croatian households with debt to economic shocks. The shocks not only impact a household's welfare, but also increase the probability of loan default. As a result, there is a direct...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111212114319 http://hdl.handle.net/10986/3675 |
| Summary: | The purpose of this paper is to stress
test the resilience of Croatian households with debt to
economic shocks. The shocks not only impact a
household's welfare, but also increase the probability
of loan default. As a result, there is a direct link between
these stress-testing exercises and financial stability
risks. The authors find that very few households are at risk
as a result of the shocks experienced over the past few
years; new vulnerable households represent about 2 percent
of all households, 6 percent of households with debt, and
2-3 percent of aggregate banking system assets. This
suggests that household over-indebtedness in Croatia is
unlikely to become a drag on aggregate economic activity and
that financial stability risks remain manageable. One caveat
should be noted. Some 27-31 percent of households with debt,
representing 8-9 of banking system assets, are vulnerable
even before being subjected to an economic shock. Since NPLs
were low before the global financial crisis, it can be
argued that banks knew something about some of these
households that is not captured by household budget surveys.
It follows that the calculations in this paper should
primarily focus on the increased vulnerability of households
as a result of shocks and are likely to represent an upper
bound to the financial stability risks faced by Croatia on
account of household indebtedness. |
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