Central bank eases restrictions on lending

Ljubljana – The Slovenian central bank will adjust its macroprudential policy as risks to financial stability stemming from the property market are increasing. It will however give banks more discretion over who they lend money to, while requiring that they increase their capital buffer.

From July, banks will be able to lend money to customers who are not considered creditworthy under current rules, that is customers who are left with only 76% of the gross minimum wage plus the amount for dependent family members after paying their monthly instalment.

However, banks will be able to opt for this exemption for only up to 10% of their transactions, Primož Dolenc, an adviser at Banka Slovenije, told the press on Wednesday.

Loan contracts for residential housing fully secured by a state guarantee will be exempt from the restrictions on retail lending.

This exemption also applies to loans taken under the law on the housing guarantee scheme for the young, which enters into force tomorrow.

Also from July, the recommended loan-to-value ratio for a second or any subsequent piece of property will be reduced from 80% to 70%.

Nevertheless, the current recommendation that the ratio should not exceed 80% will continue to apply to those who borrow to buy their first home.

To increase the resilience of banks to rising risks related to retail lending and developments in the housing market, banks will have to convert part of their capital they already hold voluntarily into mandatory capital from next year.

Banka Slovenije has given them some time to adjust to this, while it estimates that no bank will need a capital injection to meet the new standard.

The central bank has noted a steep rise in prices of property, which it estimates to be already overpriced, as well as a steep rise in housing loans.

Housing loans to households have increased to 9.1% since the end of 2021, and to 10.2% since February.

While the central bank has adopted these measures to limit the risks the property market could pose to the banking system, it believes the state has to step in to address the situation on the property market comprehensively.

With the softer rules to approve loans, Banka Slovenije also took into account some of the initiatives from banks, which were rather critical of some restrictions introduced in late 2019.