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Outline. Financial Soundness Indicators (FSIs) on households 1.1 Total debt service compared to principal payments and interests paid Focus on technical measurement 1.2 Total households’ indebtedness: long term versus short term indebtedness Focus on real estate analysis
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Outline • Financial Soundness Indicators (FSIs) on households • 1.1 Total debt service compared to principal payments and interests paid • Focus on technical measurement • 1.2 Total households’ indebtedness: long term versus short term indebtedness • Focus on real estate analysis • Households’ wealth analysis • 2.1 A measure of households’ maturity mistmaches & households’ solvency issue • 2.2 Households’ wealth effects and the last crisis • Focus on the Household Finance and Consumption Survey (HFCS)
FSIs: Household debt service and principal payment to income The indicator on total debt service could be divided into two parts : The principal payments and the interests paid on the debt
FSIs: Household debt service and principal payment to income • Principal payments calculation • Two data collecting used: • One from Balance Sheet Item (BSI) statistics used to compile monetary statistics and providing net transactions on loansgranted to households equal, inside a quarter, to: • New granted loans – principal payments on existing loans • One from Monetary Interest Rate (MIR) statistics used to compile the interest rates and new business to households • A simple way of calculation would lead to: • Principal payments = new business- net transactions • A need for retreatment as the two data collecting • are not consistent
FSIs: Household debt service and principal payment to income • Principal payments calculation • Retreatment on MIR statistics to comply with the BSI statistics perimeter • Main issue: • MIR statistics on new business include new negociations of existing loans meaning for instance debt renegotiation for which households benefited from lower interest rate - especially observed in 2010 • series on renegotiations come from a loan by loan collection of data implemented in the context of the calculation of usurary rates • Conclusion: series on new loans from MIR statistics are “ bleeded ” from debt renegotiation • After corrections, the simple calculation may be applied: • Principal payments = new business- net transactions • Interests paid on loans compiled through FISIM
FSIs: Household debt service and principal payment to income • Interests paid calculation • Interests paid on loans compiled (including FISIM) as: • Apparent interest rate from MIR statistics × • outstanding amounts on loans from financial accounts • total interests paid by households > interests paid in non financial accounts (D.41) • Interests paid in non financial accounts (D.41) are calculated as: • Reference rate × • outstanding amounts on loans from financial accounts
FSIs: Household debt to Gross Domestic Product The indicator on total debt to GDP could be divided into two parts: The short term debt and the long term debt
Households’ indebtedness and real estate transactions Households’ risk analysis cannot be disconnected from real estate analysis Graph (1) – Left: Long term banking loans to households compared to existing-home transactions and households' investment rate(data cumulated over 4 rolling quarters for loans and transactions) Graph (2) – Right:Real estate prices compared to households' disposable income Sources: Banque de France, INSEE (NSI), CGEDD after Tax Department and notaries' databases
Households : maturity mismatches and solvency issue • Maturity mismatches indicator = short term liabilities / liquid assets • Solvency indicators : total debt / total financial assets & total debt / total assets (including housing and built land).
Households’ revaluation The plunge in market prices would entail to a negative change in the households’ gross financial wealth (assessed at about 130 € billions)…
Households Finance and Consumption Survey (HFCS) and Financial Accounts • …But not hitting most of households • Confirmed by a satisfactory consistency between HFCS and financial accounts
Measurement of Households’ risks for France Thank you for your attention