Romania: Financial Sector Assessment Program-Technical Note on Calibration of a Debt-Service-to-Income Limit in Romania-Evidence from Microdata
IMF Staff Country Reports, June 8, 2018
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- Romania: Financial Sector Assessment Program-Technical Note on Calibration of a Debt-Service-to-Income Limit in Romania-Evidence from Microdata
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Bibliographic details
- Published: June 8, 2018
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484360682.002
Summary and context
- Publication date: June 8, 2018
- Purpose: Discusses calibration of a debt-service-to-income (DSTI) limit in Romania in light of a recent pick-up in household credit and the need to revisit macroprudential tools addressing household vulnerabilities.
- Institutional focus: National Bank of Romania is considering a redesign of its existing macroprudential tool related to household indebtedness, including expanding its scope to cover all household loans.
Key empirical finding
- Loan-level analysis from the Central Credit Register indicates that the probability of default of a borrower is highly sensitive to changes in DSTI at DSTI ratios at about 50 percent, particularly for mortgage loans.
- Recommendation from the analysis: set the DSTI limit such that loans do not exceed this sensitivity threshold (i.e., avoid DSTI ratios above about 50 percent).
Policy implications and recommendations
- Recalibrate the existing macroprudential tool on household indebtedness to account for the DSTI sensitivity threshold identified at about 50 percent.
- Expand the scope of the macroprudential instrument to cover all household loans to better manage household vulnerability as household credit grows.
Data and technical scope
- Data source: loan-level data from the Central Credit Register.
- Subjects and keywords listed: Consumer loans, Credit, Financial institutions, Loans, Money, Mortgages, Nonperforming loans; keywords include DSTI cap, DSTI coefficient, DSTI level, DSTI limit, DSTI ratio, ISCR, loan level, loan volume, stressed DSTI.
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- Country Report