Restrictions on retail lending to be eased in July
The Slovenian central bank will relax its restrictions on retail lending in July to make loans more accessible to individuals whose earnings range from minimum to average pay.
The minimum level of creditworthiness, now set at 76% of the gross minimum wage, will be based on the level of essential living expenses, while taking into account certain additional factors.
As a result, the threshold at which the customer is deemed creditworthy will be lowered from €915 to €745, which is the amount of money that needs to be left on the borrower's account after they have settled all their monthly loan payments.
Speaking to reporters on 7 June, Bank of Slovenia vice governor Primož Dolenc said that in calculating the borrower's income, banks will now also be able to factor in allowances such as child benefit.
The central bank will introduce a uniform limit on the ratio between the annual debt servicing cost and the borrower's annual net income.
The debt-to-income ratio will be set at 50% regardless of what the income; now the ratio is 67% for high incomes. The percentage of permitted exceptions will be reduced from 10% to 3%.
"The basic idea is to recognise the creditworthiness of a narrow circle of people who are currently officially not creditworthy, while in our expert opinion they are actually able to repay a loan," Dolenc said.
These are people whose net salary ranges from the minimum to average pay and for whom the amount used to determine creditworthiness has so far been set at 76% of the minimum wage, Dolenc explained.
The changes eliminate the impact of a surge in the minimum gross wage on borrower creditworthiness and address the issue of limited access to loans for those with incomes up to the average wage.
The leap in the minimum wage in January made it impossible for people in the lowest income brackets to get a loan. "The Bank of Slovenia tried to address this segment of consumers last year by introducing the 10% exemption rule."
However, banks utilised this permitted share of exemptions to a very low extent last year, before the level increased to around 7% in the first quarter of this year for mortgage loans.
Bank of Slovenia has calculated that the creditworthiness of potential borrowers with low incomes will increase, while there will be practically no changes for higher income groups.
The maximum monthly instalment for those with a monthly net income of €878 will be €133, rising to €170 for those earning €1,000-1,500, but the there will be little change for those making more then €1,800 net.
The maximum instalment for a couple with a net income at average pay with one child may rise to €898, for a couple with two children to €678, for a couple with three children to €521, and for a single-parent family with one child to €262.
The central bank does not expect the measure to result in a significant increase in the demand for loans, as the number of borrowers with a very low income is relatively small. "But we are giving them this option," Dolenc said.
The change in the macroprudential measure comes after parliament passed a bill in March to make loans more accessible following calls by commercial banks that restrictions should be eased.