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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 48

Assessing Nature-Related Financial Risks: The Case of Lithuania

  • Abstract

    All real economic sectors depend on nature. Accordingly, lending to economic sectors carries some degree of nature-related financial risk. To assess and mitigate the potential impact of ecosystem service loss on financial stability, it is crucial to identify and measure nature-related financial risks. Using FINREP and ENCORE data, we assess the direct material dependence on nature and evaluate physical nature-related financial risks in Lithuanian commercial bank lending. While a substantial share of bank loans (70,1%) in Lithuania goes to sectors that are very highly dependent on at least one ecosystem service, the financial risks arising from hypothetical scenarios of disruption in the provision of some of these ecosystem services is markedly lower than in other European countries due to Lithuania’s geographic specificity. The case study of Lithuania illustrates that the impacts from the loss of ecosystem services are not uniform across geographic regions, that the assumption that the level of dependence on ecosystem services can serve as an approximation of physical nature-related financial risks is inappropriate for certain geographies, and that an accurate assessment of nature-related financial risks requires location-specific dependency-risk mapping matrices.

    Keywords: Ecosystem Services, ENCORE, Nature-related Financial Risks, Financial Stability

    JEL Codes: 58, G21, Q01, Q57

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

No 47

Overview of Sustainability Disclosure by Credit Institutions and Insurance Undertakings

  • Abstract

    The need for transparent sustainability financial information has been growing rapidly in recent years. Financial information is no longer sufficient for investors and the public, they are looking at how sustainability-related risks are linked to the business strategy of the financial market participant and integrated into the management of other risks, as well as how sustainability aspects are addressed by the financial market participant. In the context of growing interest of the public and stakeholders in sustainable finance, financial market participants are expected to disclose sustainability information not only in accordance with the binding sustainability disclosure requirements in force, but also to do so voluntarily, clearly and in full detail.

    Given the relevance of the topic, the Bank of Lithuania carried out an analysis of sustainability disclosure practices of insurance undertakings and credit institutions, the aim of which is to review the sustainability information disclosed by institutions, its content and scope, and to identify good practices and provide recommendations to market participants.

    This overview presents sustainability disclosure practices of insurance undertakings and credit institutions established in Lithuania. The analysis was based on information and data available on websites from 1 July 2022 to 1 November 2022. The overview consists of three parts: the first is aimed at reviewing compliance with the disclosure requirements set out in Articles 3 to 5 of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector, the second focuses on compliance with the obligation to prepare social responsibility reports laid down in the Republic of Lithuania Law on Financial Reporting by Undertakings, and the third on the state of play of voluntary disclosure of sustainability information. In each part, we present good practice tables that we believe can be useful for improving sustainability disclosure practices.

    The following credit institutions established in Lithuania participated in the analysis:

    European Merchant Bank UAB, AB Fjord bank, UAB GF bankas, the United Central Credit Union, the Lithuanian Central Credit Union, AB Mano bankas, UAB Medicinos bankas, PayRay Bank, UAB, Revolut Bank UAB, AB SEB bankas, UAB SME Bank, Swedbank, AB, AB Šiaulių bankas (hereinafter – credit institutions),

    as well as the following insurance undertakings established in Lithuania:

    Allianz Lietuva gyvybės draudimas UAB, Compensa Vienna Insurance Group, ADB, ERGO Life Insurance SE, ADB Gjensidige, UAB draudimo kompanija LAMANTINAS, AB Lietuvos draudimas, UAB PZU Lietuva gyvybės draudimas, Gyvybės draudimo UAB SB draudimas, INVL Life, UADB, (hereinafter – insurance undertakings) (credit institutions and insurance undertakings jointly – financial institutions, financial market participants).

    Available only in Lithuanian



No 46

Micro-assessment of macroprudential borrower-based measures in Lithuania

  • Abstract

    The high-paced growth of the Lithuanian mortgage market may cast doubt on either the efficacy of the country’s macroprudential toolkit, or the appropriateness of its current parametrisation in putting a backstop to excessive dynamics. This paper assesses the adequacy of BBM’s in Lithuania by building a novel lifetime expected credit loss framework that is founded on actual loan-level default and household income data. Based on the modelling framework we document seven findings which are relevant for policymakers. We show that the BBM package effectively contains mortgage credit risk and that housing loans are more resilient to stress than in the pre-regulatory era. Our BBM limit calibration exercise reveals that: i) in the low-interest rate environment income-based measures could have been tighter; ii) borrowers taking out secondary mortgages rightly are and should be required to pledge a higher down payment of at least 30%.

    Keywords: macroprudential policy, borrower-based measures, LTV, mortgage credit risk, lifetime expected credit loss, probability of default.

    JEL Codes: C25, E61, G18, G21, G51.

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

No 45

Combating Climate Change through Policy Instruments. A Meta-Analysis of Carbon Taxation

  • Abstract

    Recently, there has been a surge of interest in policies that target climate change. This paper begins by discussing why policymakers, and central banks in particular, should be concerned about climate change, and goes on to argue why carbon pricing is an appropriate political instrument to reduce greenhouse gas (GHG) emissions. The paper details two categories of carbon pricing, namely carbon taxation and the introduction of Emission Trading Systems (ETSs), illustrating why a carbon tax is the more efficient instrument. Popular models for optimal carbon taxation and implications of carbon taxation are discussed. The paper concludes with recommendations to policymakers, which include advocacy of differentiated rather than uniform carbon taxation, phased-in carbon taxation instead of a blanket approach, introduction of the carbon border adjustment mechanism (CBAM), and Green Quantitative Easing (QE).

    Keywords: carbon taxation, climate change, green QE.

    JEL Codes: Q54, Q58, H23, E51, E62

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