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Default Contagion among Credit Types: evidence from Brazilian data

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  • Michel Alexandre da Silva
  • Giovani Antônio Silva Brito
  • Theo Cotrim Martins

Abstract

The aim of this paper is to assess the impact of defaulting on one personal credit type on future default on other types of loan. Using Brazilian micro data, we run a logistic regression to estimate the probability of default on a given credit type, by including personal overdue exposure in the other debt types among the explanatory variables. Our results show that this effect is positive and significant, although quantitatively heterogeneous. We also discuss the rationale behind these results. Specifically, it was found that financing credit types (vehicle and real estate financing) contaminate the other credit types more, as defaulting may cause the debtor to lose the financed good. Moreover, riskier loan types (overdraft, non-payroll-educted personal credit, and credit card) are more contaminated by defaults on other credit types, which is explained by the fact that defaulting individuals have limited access to less risky debt types.

Suggested Citation

  • Michel Alexandre da Silva & Giovani Antônio Silva Brito & Theo Cotrim Martins, 2018. "Default Contagion among Credit Types: evidence from Brazilian data," Working Papers Series 476, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:476
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps476.pdf
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    Cited by:

    1. Michel Alexandre & Thiago Christiano Silva, 2023. "Labor Market and Systemic Risk: a network-based approach," Working Papers Series 584, Central Bank of Brazil, Research Department.

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