Micro-assessment of macroprudential borrower-based measures in Lithuania

Jaunius Karmelavičius and Mantas Dirma
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Jaunius Karmelavičius: Bank of Lithuania
Mantas Dirma: Bank of Lithuania

No 46, Bank of Lithuania Occasional Paper Series from Bank of Lithuania

Abstract: The high-paced growth of the Lithuanian mortgage market may cast doubt on either the efficacy of the country’s macroprudential toolkit, or the appropriateness of its current parametrisation in putting a backstop to excessive dynamics. This paper assesses the adequacy of BBM’s in Lithuania by building a novel lifetime expected credit loss framework that is founded on actual loan-level default and household income data. Based on the modelling framework we document seven findings which are relevant for policymakers. We show that the BBM package effectively contains mortgage credit risk and that housing loans are more resilient to stress than in the pre-regulatory era. Our BBM limit calibration exercise reveals that: i) in the low-interest rate environment income-based measures could have been tighter; ii) borrowers taking out secondary mortgages rightly are and should be required to pledge a higher down payment of at least 30%.

Keywords: macroprudential policy; borrower-based measures; LTV; mortgage credit risk; lifetime expected credit loss; probability of default. (search for similar items in EconPapers)
JEL-codes: C25 E61 G18 G21 G51 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2023-01-30
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Citations: View citations in EconPapers (2)

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