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Occasional Paper Series

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Occasional papers feature analytical descriptive or discussion articles and extended commentaries prepared by the Bank of Lithuania staff on subjects relevant for central banking. The papers within the series analyse topical questions and issues relevant to the activities of the Bank of Lithuania, introduce the results of analytical and policy work conducted at the institution, explaining its decisions and opinions. Occasional papers target a wider audience, including policymakers, financial analysts, academics, the media and the general public. 

Papers are available in Lithuanian or English.

No 54
2024-07-23

Housing affordability study

  • Abstract

    As house price growth accelerated during the pandemic, housing affordability in Lithuania started to deteriorate for the first time in a decade. This trend did not last long and, as price growth slowed down and incomes continued to rise rapidly, signs of improving affordability have already become visible from 2023. Although the deterioration in housing affordability in Lithuania was a temporary phenomenon caused by strong external shocks, it is important that housing policy in Lithuania provides the conditions for a structurally sustainable level of affordability. In this study, the Bank of Lithuania has analysed various indicators of housing affordability and the demand and supply factors that may it. The results of the study have led to four main orientations for sustainable housing policy: to achieve sustainable housing demand developments, a larger and more flexible supply of quality housing, meeting the housing needs of socially vulnerable people, and creating a long-term and common housing policy strategy.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.


    Available only in Lithuanian

No 53
2024-04-03

Factors affecting price developments in Lithuania in 2004-2022 based on national accounts data

  • Abstract

    This paper uses national accounts data and relationships to analyse how developments in profits, labour costs, terms of trade and other components of gross output affected the domestic price level in 2004-2022 in Lithuania. The analysis shows that in both periods of rapid price growth (2005-2008 and 2021-2022), a strong initial impulse to price growth was provided by a deterioration in the terms of trade due to a significant increase in the prices of imported goods and services. In both periods, after the initial terms-of-trade shock, both unit labour costs and unit profits show an increase in their contribution to the price level. The contribution of unit labour costs to the price level was more significant in 2005-2008, while the contribution of unit profits was more significant in 2021-2022. The higher contribution of unit labour costs to price level growth in 2005-2008 is explained by the significantly tighter labour market situation due to the overheated economy during this period. Meanwhile, the more significant contribution of unit profits to price level growth in 2021-2022 is explained by strong supply-side shocks and a high inflation environment both in Lithuania and in Lithuania’s main trading partners. This environment has made it easier for firms to pass on rising production costs to final prices without losing competitiveness. This led to a faster evolution of the profit share in value added and a correspondingly strong increase in the contribution of unit profits to the price level. Since both the share of profits in value added and unit profits can grow even when profit margins are constant, this paper also assesses the evolution of corporate profit margins. The analysis shows that in both periods of high inflation, corporate profit margins have been declining economy-wide. This indicates that during the high inflation periods firms have borne at least part of the economy-wide increase in production costs themselves, and that the overall evolution of prices can be attributed mainly to changes in production costs.

     

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.


    Available only in Lithuanian

No 52
2024-02-28

Commercial real estate risk supervision framework

  • Abstract

    Similar to eurozone as a whole, in Lithuania, the commercial real estate sector is closely linked with the financial system and the real economy: loans secured by commercial properties account for almost a third of the total bank loan portfolio, and the development of housing and other buildings creates about an eighth of Lithuania's GDP. However, so far both in Lithuania and across Europe, this sector has been supervised quite unsystematically, and the lack of harmonized indicators and data complicates monitoring at the international level. Aiming to ensure timely identification of risks to financial stability and improve international data comparability, the Bank of Lithuania, following the ESRB recommendation and methodology, has developed a commercial real estate market supervision framework. The main purpose of this article is to presents the developed framework. The article, alongside specific guidelines on how to consistently assess risks arising from the commercial real estate market, discusses methodological and data gaps that continue to pose challenges in ensuring a comprehensive risk assessment.

     

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.


    Available only in Lithuanian

No 51
2024-02-20

State guarantees for loans to small and medium-sized businesses

  • Abstract

    In 2021, the Bank of Lithuania and the Competition Council published a study assessing the accessibility of financing sources for small and medium-sized businesses (SMEs) in Lithuania in 2018–2019 and the factors limiting it. The study results have revealed that the funding opportunities for SMEs in Lithuania could be limited by various long-term constraints, including the lack of the enterprises’ adequate collateral and a higher risk of some enterprise groups, which has not always received due consideration through state aid measures.

    In order to obtain sufficient funding, SMEs are faced with the collateral requirements which are often more difficult to comply with due to the inadequate assets in their possession. One of the measures that allows addressing the problem of inadequate assets of SMEs is loan guarantees. With this measure, the guarantor assumes part of the credit risk, which makes it possible to mitigate the risk for the credit institution and to enable SMEs to obtain adequate funding. However, in the previous study of the Bank of Lithuania and the Competition Council, which analysed SMEs’ access to the funding sources in 2018-2019, the results of the econometric modelling applied did not indicate any significant impact of state guarantees on the size of collateral requested by lenders.

    This study is aimed at reviewing in greater detail the international practice of applying state guarantees (Section1) and Lithuania’s experience (Section 2), and at assessing the effectiveness of guarantee instruments in Lithuania, taking into account the groups of enterprises that received a guarantee and the effect of guarantees on the terms of lending (Section 3). In light of the results, lines of action to contribute to the development of these measures are proposed (Section 4).

    Keywords: State guarantees, small and medium-sized businesses, access to finance, collateral requirements

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.


    Available only in Lithuanian