ERBE 03 2 01
Assessing the Effectiveness of the Portuguese Borrower-based Measure in the Covid-19 context
KATJA NEUGEBAUER 
a, VÍTOR OLIVEIRA a, ÂNGELO RAMOS a
a Banco de Portugal, b CICEE – Research Center in Economics & Business Sciences, Lisbon, Portugal.
To cite this article:
Neugebauer, Katja, Vítor Oliveira, Ângelo Ramos. 2024. Assessing the Effectiveness of the Portuguese Borrower-based Measure in the Covid-19 Context, European Review of Business Economics III(2): 3-24.
DOI: https://doi.org/10.26619/ERBE-2024.3.2.1
Received: 22 March 2024. Accepted: 26 June 2024. Published: 30 June 2024.
Language: English
Abstract
Based on the macroeconomic projections from Banco de Portugal and using an integrated micro-macro model developed by Gross and Población (2017), this paper makes a first attempt at gauging the impact of the Covid-19 pandemic on Portuguese households and banks. To this end, we examine how the borrower-based measure, which was put into place in 2018, may have been successful in lessening the negative economic effects of the pandemic on households’ debt-servicing capacities and thereby on the banking system. We find that the borrower-based measure, defined as an LTV ratio cap of 90%, a shocked DSTI ratio cap of 50%, and a maturity cap for mortgage loans of 40 years, leads to (i) a reduction in households’ loss rate (LR), caused by both a decrease in households’ probability of default (PD) and loss given default (LGD), and (ii) an increase in the capital ratio of the banking system, compared with a scenario where these limits are not in place. We also find positive effects of introducing a shocked DSTI ratio cap, calculated according to the Portuguese borrower-based measure, as it further (i) decreases the risk parameters of the borrowers and (ii) increases the capital ratio of banks.
Keywords
Macroprudential policy; Central bank; Covid-19.
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