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What is macroprudential policy?
We contribute to the safeguarding of stability of the financial system by implementing macroprudential policy, the goal of which is to enhance the resilience of the financial system and reduce the formation of systemic risk, thereby seeking to ensure a sustainable contribution of the financial sector towards economic growth.
The global financial crisis clearly demonstrated what a significant negative impact financial instability can have on a country’s economic growth and employment. Seeking to diminish the possibility of financial crisis formation, the EU restructured the institutional and regulatory framework for financial sector’s supervision.
One of the key components of this reform is explicit granting of the mandate for macroprudential policy implementation to the responsible authorities in each EU country.
Since 2014 macroprudential policy in Lithuania is carried out by the Bank of Lithuania which was granted a sole responsibility to conduct macroprudential policy by the Law on the Bank of Lithuania.
The primary objective of macroprudential policy is to contribute to the safeguarding of stability of the financial system, including enhancement of the resilience of the financial system and reduction of the formation of systemic risk, thereby seeking to ensure a sustainable contribution of the financial sector towards economic growth.
Macroprudential Policy Strategy
We take decisions ensuring financial stability in accordance with the Macroprudential Policy Strategy (111.9 KB download icon), which provides for five interim objectives:
1. to limit and prevent excessive credit growth and leverage;
2. to limit and prevent excessive maturity mismatch, excessive currency and liquidity risk in the financial system;
3. to limit the concentration of assets or other direct and indirect exposures of financial services companies;
4. to limit misaligned incentives of systemically important financial institutions to take excessive risk, with a view to reducing their moral hazard;
5. to strengthen the resilience of financial market infrastructure.
Macroprudential policy instruments
| Instrument | Level | Valid from | Objective of instrument | Legal acts | Related documents |
| Loan-to-value ratio (LTV) | 85% |
1 November 2011 |
To limit the excess credit risk assumed by financial institutions and develop a responsible borrowing practice by preventing households from becoming overindebted, and thus creating conditions for sustainable credit growth |
Responsible Lending Regulations (252.8 KB download icon)
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| 70% for second and subsequent housing loans | 1 February 2022 | ||||
| Debt service-to-income ratio (DSTI) | 40% |
1 November 2011 History (10 KB download icon) |
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| Stress test/sensitivity test | 50% DSTI, when calculated with 5% interest rate | 1 November 2015 | |||
| Loan maturity | 30 years |
1 November 2015 History (31 KB download icon) |
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| Countercyclical capital buffer |
1% |
1 October 2023 History (12.4 KB download icon) |
To hold a sufficient capital buffer to cover potential bank losses in case of cyclical systemic risk or during an economic downturn |
Resolution (114.3 KB download icon) |
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Capital buffer of other systemically important institutions (O-SII buffer) |
1.0–2.0% |
31 December 2016: 0.5–2.0%
31 December 2021: 1.0–2.0% (Revolut Bank UAB: 1.0% from 1 July 2023) History (12.6 KB download icon) |
To increase the resilience of other systemically important institutions in Lithuania to shocks and reduce the probability of their bankruptcy |
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Rules for the Formation of Capital Buffers Application of the capital buffer requirement for other systemically important institutions in Lithuania (716.2 KB download icon) |
| Sectoral systemic risk buffer | 2% of the amount of risk-weighted retail exposures to natural persons in the Republic of Lithuania, which are secured by residential real estate | 1 July 2022 | To increase financial system resilience in the event of a higher risk of housing market overheating and to reduce the formation of imbalances in the housing loan market | Resolution (66.2 KB download icon) | About the sectoral systemic risk buffer |
| Capital conservation buffer | 2.5% | 30 June 2015 | To obligate banks to accumulate additional capital to cover unexpected losses | Resolution (375.5 KB download icon) | |
| Assessment of the impact of transactions on systemic risk | Assessed individually | 1 November 2021 | To prevent the transactions between banks and banking groups that would increase concentration in the credit institutions sector to an extent that would pose a systemic risk to financial stability |
Republic of Lithuania Law on Banks (Article 771) Resolution |
About the assessment of the impact of transactions on systemic risk |
Financial stability monitoring
We aim to ensure that credit institutions operate in a competitive yet stable environment. Hence, we strengthen the resilience of both individual credit institutions and the entire domestic financial system to internal and external economic shocks as well as ensure effective allocation of scarce financial resources.
We supervise credit institutions and payment systems, assess potential threats to effective and continuous functioning of credit institutions, conduct surveys of financial market participants, as well as collect and analyse statistical and other information. In cooperation with Lithuanian and foreign institutions, we offer tools that help avoid and mitigate threats to the stability of the financial system.
Analysis of the main risks to the stability of Lithuania’s financial system is presented in the Financial Stability Review, published on an annual basis.
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