IMF Working Papers

Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania

By Mantas Dirma, Jaunius Karmelavičius

October 27, 2023

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Mantas Dirma, and Jaunius Karmelavičius. Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Despite having introduced borrower-based measures (BBM), Lithuania's housing and mortgage markets were booming during the low-interest-rate period, casting doubt on the macroprudential toolkit's ability to contain excessive mortgage growth. This paper assesses the adequacy of BBMs’ parametrization in Lithuania. We do so by building a novel lifetime expected credit loss framework that is founded on actual loan-level default and household income data. We show that the BBM package effectively contains mortgage credit risk and that housing loans are more resilient to stress than in the preregulatory era. Our BBM limit calibration exercise reveals that (1) in the low-rate environment, income-based measures could have been tighter; and (2) borrowers taking out secondary mortgages rightly are and should be required to pledge a higher down payment.

Subject: Credit risk, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Housing prices, Loans, Macroprudential policy instruments, Mortgages, Prices

Keywords: Baltics, BBM package, Borrower-based measures, Calibration exercise, Credit risk, Europe, Global, Housing prices, Lifetime expected loss, Lithuania's housing market, Loans, LTV, Macroprudential policy, Macroprudential policy instruments, Modeling mortgage risk, Mortgage credit risk, Mortgages, Probability of default.

Publication Details

  • Pages:

    68

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2023/227

  • Stock No:

    WPIEA2023227

  • ISBN:

    9798400256578

  • ISSN:

    1018-5941

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