Press release - Announcing the introduction of macro-prudential instruments for the real estate market
At its 561st meeting held on 30 August 2016, the Governing Board of the Bank of Slovenia approved the introduction of two macro-prudential instruments for the real estate market in the form of recommendations for banks.
Recommendation A: Limitations on the LTV ratio when entering into new housing loan agreements:
1) It is recommended that the LTV (loan-to-value) ratio does not exceed 80% when entering into new housing loan agreements secured by real estate collateral.
Recommendation B: Limitations on the DSTI ratio when entering into new housing loan agreements:
1) It is recommended that the DSTI (debt service-to-income) ratio does not exceed the following values when entering into new housing loan agreements:
a) for borrowers with monthly income less than or equal to EUR 1,700: 50%; and
b) for borrowers with monthly income exceeding EUR 1,700: 50% for that portion of income up to EUR 1,700 inclusive, and 67% for that portion of income exceeding EUR 1,700.
In the event of several borrowers, this provision applies to each borrower separately.
2) In the loan approval process (when assessing creditworthiness), it is recommended that banks apply, mutatis mutandis, the limitations on the attachment of a debtor’s financial assets set out in the Enforcement and Securing of Claims Act (ZIZ) and the Tax Procedure Act (ZDavP-2), i.e. earnings that are exempt from attachment and limitations on the attachment of a debtor’s financial earnings.
The Bank of Slovenia is implementing macro-prudential instruments for the real estate market as a recommendation or precautionary measure. The measures pursue the intermediate objective of preventing excessive credit growth and excessive leverage. The type and scope of the instruments are defined so that they do not encroach significantly on the current lending activity and business policies of banks, as the situation on the Slovenian real estate market is stabilising and does not currently present any direct risk to financial stability. The situation could change rapidly in the future due to the sustained period of low interest rates, the low level of household indebtedness, the aggressive range of loans with a fixed interest rate, etc. Housing loans represent a segment of lending activity that could face relatively high exposure to systemic risks at the start of a new financial cycle.
The introduction of macro-prudential instruments does not encroach on rules governing responsibilities in the assessment and taking up of risks by banks. Banks should continue to define their own internal policies in the assessment and taking up of risks with respect to the value of real estate collateral and the creditworthiness of borrowers.