Skingsley: Household debt under the microscope

The Riksbank now has a new, important piece of the puzzle regarding household debt, and this raises concerns as problems associated with debt appear to be more extensive and more comprehensive than was previously known. This was part of the message delivered by Deputy Governor Cecilia Skingsley on Thursday when she presented her view of household debt and commented on the analysis of the new data on debt that the Riksbank has collected from the eight largest banks in Sweden, (Economic Commentary: How indebted are Swedish households?).

She also noted that the conclusions one can draw from the data are worrying. The analysis shows, for example, that households in general are highly indebted in relation to their incomes – and this applies above all to low and middle-income earners. The results thus contradict the picture that it is only households with high incomes that have the highest debt ratios. The debts are also spread throughout the country. The analysis shows that four out of ten borrowers are not reducing their debts, and that those who are reducing them are doing so very slowly. Ms Skingsley pointed out that the problems associated with debt thus appear to be more extensive and more comprehensive than was previously known.

Household indebtedness has been discussed frequently in many different contexts and the Riksbank has expressed its concern about the situation for several years now. The household debt ratio has increased from 90 to 174 per cent since 1995, and it is expected to continue to increase in the years immediately ahead. As a result, the households have become sensitive to shocks such as a loss of income, falling asset prices or rising interest rates. The high debts may also pose a risk to the real economy and to the stability of the financial system.

The statistics that have been available to date have not been able to provide a complete picture of the households' debt situation, said Ms Skingsley. In recent years, the analysis of household indebtedness has primarily been based on aggregate data or random samples of new borrowers. It has therefore not been possible to see how the debts are distributed among the individuals and households that actually have debts. Ms Skingsley said that she hopes the new analysis can make a positive contribution to the discussion of measures, so that the risks relating to household debt can be reduced and the resilience of the banks can be strengthened.

Read the entire speech: Household debt under the microscope