Kwanho Shin, Korea University: As of the end of 2018, the ratio of household debt to GDP was 91.9 percent in Korea, much higher than in the United States or Japan. The household debt problem has been singled out as the most important threat to the stability of the financial system in Korea. Nevertheless, stress tests run by the Bank of Korea and other authorities conclude that financial intermediaries are resilient against even quite pessimistic scenarios. This paper, by investigating the factors behind the loan defaults of borrowers classified by their employment status, attempts to examine how fragile the financial system of Korea is.
The authors focus more on self-employed borrowers because most of their loans are unsecured and are exposed to higher risk. Their findings are summarized as follows. Although the key determinants of default are the type of loan (secured or unsecured), the credit rating of borrower, and...