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Payment Holidays, Credit Risk, and Borrower-Based Limits: Insights from the Czech Mortgage Market

Author

Listed:
  • Martin Hodula
  • Lukas Pfeifer

Abstract

The Czech Republic provides a unique setting to examine the effects of loan moratoria during the COVID-19 pandemic, as it combined broad-access legislative moratoria with stricter, eligibility-based bank moratoria. Using detailed loan-level data from the Czech mortgage market, we find that legislative moratoria were predominantly precautionary, addressing a wide range of borrowers, whereas bank moratoria were primarily utilized by higher-risk borrowers facing solvency challenges. Post-moratoria, we observe limited materialization of credit risk, which was nearly twice as high for bank moratoria compared to legislative moratoria. Stricter borrower-based regulations (LTV, DTI, and DSTI limits) implemented prior to the pandemic were associated with lower moratoria uptake and reduced post-moratoria arrears. These findings underscore the effectiveness of combining universal legislative moratoria with targeted bank measures to balance immediate economic relief and long-term financial stability.

Suggested Citation

  • Martin Hodula & Lukas Pfeifer, 2025. "Payment Holidays, Credit Risk, and Borrower-Based Limits: Insights from the Czech Mortgage Market," Working Papers 2025/1, Czech National Bank, Research and Statistics Department.
    • Handle: RePEc:cnb:wpaper:2025/1
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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2025_01.pdf
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    More about this item

    Keywords

    Borrower-based measures; COVID-19 economic policy; credit risk mitigation; loan moratoria; mortgage arrears;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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