This paper analyzes the factors behind the loan defaults of borrowers by their employment status (whether they are self-employed) using the Korea Consumer Credit Panel data held by the Bank of Korea, and estimates the probability of default and the fragility of the financial sector. This is done using the concept of exposure at default for individuals. Using individual data on loans and delinquencies, we divide the spreads of personal loans into spreads determined by loan characteristics and spreads based on credit ratings to examine how these factors determine the probability of default among self-employed and non-self-employed borrowers. We find that the marginal effect of the spread based by the characteristic of loans and the borrowers’ credit ratings on the probability of default is greater to the self-employed borrowers, as compared to the non-self-employed borrowers. Especially, the effect of the spread by credit rating is stronger than the other. When we measure the vulnerability of financial institutions in terms of households’ probability of default, the institutions’ exposure to default of the self-employed affects to institutions’ vulnerability more than those of the non-self-employed. Therefore, more attention should be paid to the connectedness of financial institutions to household debt, and, in particular, the financial status of the self-employed.

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