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Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania

Author

Listed:
  • Mantas Dirma
  • Jaunius Karmelavičius

Abstract

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.

Suggested Citation

  • Mantas Dirma & Jaunius Karmelavičius, 2023. "Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania," IMF Working Papers 2023/227, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2023/227
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    Cited by:

    1. Lavrič, Mitja & Lenarčič, Črt, 2024. "Why is the LSTI ratio increasing? Explaining factors of synthetic LSTI dynamics," MPRA Paper 122036, University Library of Munich, Germany.

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