Macroeconomic factors influencing UK household loan losses
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 9 November 2012
Abstract
Purpose
The purpose of this paper is to investigate the effects of macroeconomic factors on secured and unsecured household loans from UK banks.
Design/methodology/approach
The approach uses Vector auto‐regression models to test the relationship between macroeconomic factors such as interest rates, house prices, unemployment rates, disposable income and bank write‐offs to discern the main factors which could impact on banks' losses.
Findings
This paper identifies several macroeconomic factors that influence loan losses. The influence however depends on the type of arrears. Changes in house prices, interest rates and unemployment rates have a significant impact on secured loans. There is however, minimal impact on unsecured loans. Unemployment stands out as the major factor that influences both mortgage and credit card arrears. The estimated results show that the main factors impacting on credit cards are disposable income and unemployment rates, while changes in interest rates have no impact on credit card write‐offs.
Originality/value
This paper's value lies in providing methods by which commercial banks could manage household loans better by reducing the effects of macroeconomic factors.
Keywords
Citation
Dinh, M.T.H., Mullineux, A.W. and Muriu, P. (2012), "Macroeconomic factors influencing UK household loan losses", Journal of Financial Regulation and Compliance, Vol. 20 No. 4, pp. 385-401. https://doi.org/10.1108/13581981211279345
Publisher
:Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited