How Much Income is Used for Debt Payments? A New Database for Debt Service Ratios

Abstract

Important information on the interactions between debt and the real economy can be derived from debt service ratios (DSRs), ie the ratio of principal and interest payments to income. The BIS has accordingly released estimated aggregate DSR data for the total private non-financial sector for 32 countries from 1999 onwards. The methodology and key concepts are presented by Mathias Drehmann, Anamaria Illes, Marjorie Santos (BIS) and Mikael Juselius (Bank of Finland). For most countries, DSRs are available for both the household sector and the non-financial corporate sector. This article shows that estimated DSRs can meaningfully portray the movement of debt burdens over time, even though they are extracted from a relatively sparse set of aggregate data. A brief look at the evolution of DSRs in recent years shows that they allow a more comprehensive assessment of credit burdens than the credit-to-income ratio or simple measures of interest payments relative to income, because they take both interest payments and amortisation into account.