The macroprudential measure implemented by Banco de Portugal in July 2018 recommends the adoption of prudent standards on the borrower’s creditworthiness assessment which limit the granting of credit to borrowers with higher risk profile. The measure covers loans to households/consumers and introduces limits to the LTV (loan-to-value) and DSTI (debt service-to-income) ratios, to the maturity and a requirement of regular payments of interest and principal. By defining prudent standards on the borrower’s creditworthiness assessment, the measure aims at enhancing the resilience of the financial sector to adverse shocks and at promoting sustainable financing by households.

An important question when implementing this type of measures concerns its short-run effects on the credit market. To assess these effects, we construct a counterfactual scenario – a representation of what could have happened if the measure had not been introduced. The counterfactual scenario suggests that new loans for house purchase would continue to grow in the absence of the measure, whereas the observed data shows that new loans decelerated after its introduction. The difference between the counterfactual and the observed data increases over time and, 4 months after the introduction of the macroprudential recommendation, there is evidence supporting the conclusion that it contributed to curb the growth of new loans for house purchase. 

For more details see Daniel Abreu and Joana Passinhas (2021), Curb your enthusiasm: the aggregate short-run effects of a borrower-based measure, published in Banco de Portugal Economic Studies (Vol. 7, N. 2).

Prepared by Daniel Abreu and Joana Passinhas. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem. 

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