Macroprudential restrictions on household lending (effective from July 1, 2023)
Pursuant to the first paragraph of Article 31 of the Bank of Slovenia Act (Official Gazette of the Republic of Slovenia, Nos. 72/06 [official consolidated version], 59/11, 55/17 and 5/18), and Articles 4, 17 and 19 of the Macroprudential Supervision of the Financial System Act (Official Gazette of the Republic of Slovenia, Nos. 100/13 and 42/23), adopted the Regulation on macroprudential restrictions on consumer lending (Official Gazette of the Republic of Slovenia, No. 63/23) and the Regulation laying down the minimum creditworthiness amount for consumers (Official Gazette of the Republic of Slovenia, No. 63/23). The two regulations entered into force on 1 July 2023.
The Regulation on macroprudential restrictions on consumer lending adjusted the macroprudential restrictions introduced by two earlier regulations, the Regulation on macroprudential restrictions on household lending (Official Gazette of the Republic of Slovenia, Nos. 64/19 and 75/20) and the Regulation on macroprudential restrictions on consumer lending (Official Gazette of the Republic of Slovenia, No. 60/22). The regulation applies to banks, savings banks, branches of Member State banks and branches of third-country banks in Slovenia (subsequently referred to simply as “banks”). The aim of the measure is to mitigate and prevent excessive credit growth and excessive leverage.
The Regulation on the determination of the minimum creditworthiness of consumers sets the minimum amount that must remain available to consumers each month after all instalments under credit agreements have been paid.
Applicable macroprudential measures
The regulation establishes three binding macroprudential measures:
a) a cap on the ratio between the annual cost of servicing the total debt and the consumer's annual income at the time of concluding the credit agreement (DSTI),
b) a maturity limit,
c) a cap on the ratio between the amount of the bridge loan secured by financial instruments and the value of the financial instruments (LTC).
And one non-binding measure:
d) a recommendation on the maximum ratio between the amount of the credit agreement for residential immovable property and the value of the residential immovable property securing the credit at the time the credit agreement is concluded (LTV).
Macroprudential measures implement minimum credit standards for residential and consumer loans, but banks remain responsible for assessing the creditworthiness of borrowers and for taking on the risks arising from newly granted loans.
Cap on DSTI
Cap on DSTI applies to all loans to households (consumer and housing). The DSTI ratio is calculated as:
The annual cost of servicing the entire debt includes the costs of servicing the loan that is the subject of the new loan agreement and the amounts of all other outstanding loan agreements, including leases, with the exception of debts related to credit cards and credit limits. The debt also does not include loans that will be repaid under the new credit agreement.
The consumer's annual net income includes income from all sources of income as defined by the Personal income tax act that are not exempt from enforcement, with the exception of one-off and occasional income (e.g., jubilee or extraordinary awards). Notwithstanding the above, income tax refunds may be taken into account in the income. Child allowances and certain other social welfare benefits are also taken into account in the calculation of annual income. Where the amount of a consumer credit agreement does not exceed EUR 5,000, the consumer's income may be calculated by converting the last three months' income from employment or the last month's pension income to an annual level.
Cap on DSTI sets the maximum permissible DSTI ratio.
a) When a new credit agreement is concluded, the DSTI may not exceed 50%.
b) Irrespective of their level of income, the consumer must be left with the minimum creditworthiness amount each month after paying all instalments under credit agreements. A consumer who maintains a family dependant or another person whose maintenance is required by law must also be left with the amount of income stipulated for the maintenance of the aforementioned person, according to the criteria set out by the law governing social security benefits for the award of cash social assistance.
Each quarter, the bank may approve up to 3% of consumer loans and 3% of housing loans with a DSTI ratio exceeding the prescribed cap on DSTI.* Credit agreements for consumer purposes that exceed the cap on DSTI must comply with the cap on maturity for consumer credit. If a loan agreement is concluded by several borrowers, the DSTI is calculated separately for each borrower.
Minimum creditworthiness amount for consumers
The lower limit of creditworthiness is based on minimum living costs (increased by the amount for dependent family members), which is adjusted as necessary for the general level of inflation and other factors. Banka Slovenije reviews the minimum creditworthiness amount for consumers at least once a year, publishes it online, and also publishes any change in the amount in the Official Gazette of the Republic of Slovenia. In the event of a change in the minimum creditworthiness amount, we also publish an explanation of the calculation online.
The minimum creditworthiness amount has stood at EUR 745 since 1 July 2023.
In determining the minimum creditworthiness amount we took account of the calculation of the minimum cost of living by the Institute for Economic Research in the amount of EUR 669.8 from November 2022, which we adjusted for the inflation forecasts for 2023 and 2024.
Pursuant with the Regulation on macroprudential restrictions on consumer lending, the Bank of Slovenia reviewed the minimum amount of consumer creditworthiness at the end of December 2024 and concluded that this amount does not need to be adjusted. The minimum amount of consumer creditworthiness for 2025 remains at EUR 745. The next assessment of the minimum creditworthiness amount for consumers is expected to be carried out in the second half of 2025.
Cap on maturity
The decision also sets the maximum cap on maturity for consumer loans that are not secured by residential real estate. This may not exceed 84 months (7 years).
Each quarter, the bank may approve up to 15% of consumer loans with a maturity of more than 84 months (7 years).* The maturity of these loans may not exceed 121 months (10 years) and must comply with the limits on DSTI.
For bridge loans secured by financial instruments, the maturity may not exceed 36 months (3 years).
The maturity of a credit agreement for residential real estate is not limited.
Cap on LCT
The decision sets the maximum LTC ratio for bridge loans secured by financial instruments. The LTC ratio is calculated as:
When concluding a bridge loan secured by financial instruments, the value of the LTC may not exceed 70%. For bridge loans secured by financial instruments, there are some other restrictions on the financial instruments that can be used as collateral. Banks are advised to apply stricter restrictions if the financial instruments are riskier.
Recommendation on LTV
The recommendation regarding the LTV ratio applies to all loans secured by residential real estate (consumer and residential). The LTV ratio is calculated as:
It is recommended that when concluding a credit agreement secured by residential real estate, the LTV ratio does not exceed 70%. For a credit agreement for a primary residence, it is recommended that the LTV ratio does not exceed 80%. A primary residence is a property in which the consumer will have their permanent residence after its purchase, construction, or renovation. If a credit agreement for residential property is concluded by several consumers, they are considered to be purchasing, renovating, or building a primary residence if this property will be the primary residence for at least half of the consumers concluding the credit agreement.
Banks must document and explain any deviation.
Links and documents
An overview of the key changes to macroprudential restrictions on consumer lending from 2023 is available at this link. Macroprudential restrictions on lending to the population, valid until June 30, 2023, are available at this link.
Notes
* The basis for calculating the quota for permitted exceptions is new loans approved in the previous quarter that complied with the binding restrictions. The quota is calculated separately for consumer and housing loans.