A methodological framework for measuring household financial vulnerability with a focus on mortgage debt: the case of Kazakhstan

Abstract

This paper proposes a methodological framework for constructing a Household Financial Vulnerability Index (HFVI) for emerging market economies, with Kazakhstan as an illustrative case. Unlike approaches that track isolated indicators (e.g., DSTI or LTV), HFVI integrates three dimensions — liquidity (buffer months, liquidity-to-assets), solvency (DSTI, debt-to-assets) and mortgage-housing risk (mortgage's share of debt and payments, LTV) — into a single composite. Indicators are rescaled to [0,1] and aggregated with equal within-block and block weights. Robustness is assessed via sensitivity to normalization bounds and indicator inclusion (leave-one-out). In Kazakhstan, where fixed-rate loans predominate, the share of floating-rate loans (FRL) is not used; in floating-rate markets, FRL can be used as a meso-level modifier in interest rate scenarios. Given the credit structure of Kazakhstan, where unsecured consumer lending is the dominant source of short-term stress, consumer credit risk is determined mainly through the solvency component. HFVI supports macroprudential policy by calibrating borrower-oriented tools, informative stress testing, and improving early warning systems in line with SDGs 10 and 11.