Household indebtedness contributing to corporate loan losses

Abstract

Household indebtedness and overheating of the housing market have contributed to financial crises throughout history. However, a considerable proportion of banks’ losses during crises have resulted from corporate loans. The situation arises when indebted households cut down their spending during an economic downturn, increasing companies’ financial difficulties. The current situation in Finland is twofold: household indebtedness is record-high and has been increasing for a long time, but housing market developments have for the most part remained moderate. The percentage of loans related to housing and real estate is high.