With this paper Jinhee Kim and Jehyun Park co-won the 11th edition of the EACB Award for Young Researchers on Co-operative Banks.
Abstract
This study examined the determinants of household debt from the perspective of financial institutions. Our research analyzed the causes of household debt utilizing personal data from 794,100 borrowers in South Korea from December 2019 to December 2022 to compare credit cooperative members’ loan characteristics with those of bank borrowers. The results reveal several insights. First, bank borrowers decreased their borrowings as interest rates rose, but there was no significant relationship between interest rates and loan amounts for credit cooperative borrowers. Second, personal credit loans are more sensitive to interest rates than mortgage loans. Finally, we segmented the age groups into those in their 20s-30s, 40s-50s, and 60 years or older, revealing that older age groups were more sensitive to interest rate changes. The implications of this study are that credit cooperatives, built on relationship lending, may encounter fewer information asymmetry issues than commercial banks. Credit cooperatives play a similar role to banks in household loans, but it is different from banks in terms of regional-based relationship banking.