Instruments for the real estate market

Valid until 5.11.2018. For currently valid Macroprudential recommendation for household lending click here.

Pursuant to the Macroprudential Supervision of the Financial System Act (Official Gazette of the Republic of Slovenia, No. 100/13), the Governing Board of the Bank of Slovenia approved the introduction of two macroprudential instruments for the real estate market in the form of recommendations for banks at its 561st meeting held on 30 August 2016.

The measures pursue the intermediate objective of macroprudential policy of mitigating and preventing excessive credit growth and excessive leverage¹.

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. 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 instruments described below are thus required as a preventive measure.

* The Governing Board of the Bank of Slovenia changed the text of the Macroprudential recommendation for housing loans on 19 June 2018. This comes into force on 1 October 2018. In the new text, definitions of some terms are changed, eg. housing loan and property value. The text further emphasizes that the DSTI ratio covers the costs of servicing the entire debt for all borrowers, and not just the servicing of a home loan.

Recommended maximum level of the LTV and DSTI ratio

The macroprudential recommendation includes the recommended maximum level of the LTV (loan-to-value) ratio and the recommended maximum level of the DSTI (debt service-to-income) ratio.

The recommended maximum level of the LTV ratio is 80%, while the recommended maximum level of the DSTI ratio is:

50% for borrowers with monthly income less than or equal to EUR 1,700, and
50% for that portion of income up to EUR 1,700 inclusive and 67% for that portion of income exceeding EUR 1,700 for borrowers whose monthly income is greater than EUR 1,700.

Moreover, 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 and the Tax Procedure Act, i.e. earnings that are exempt from attachment and limitations on the attachment of a debtor’s financial earnings.

The macroprudential measures are being introduced as a non-binding recommendation. The introduction of the measures will facilitate the systematic monitoring of changes in housing loans in terms of the LTV and DSTI ratios, while harmonising the monitoring of credit standards amongst banks with regard to the aforementioned ratios. In the event of increased risks to financial stability as the result of failure to comply with the recommendation, the Bank of Slovenia will introduce a binding macroprudential measure, while the parameters of the instruments will be tightened in the event of rising systemic risks despite compliance with the recommended maximum values.

The introduction of the macroprudential instruments does not encroach on the responsibilities of banks in the assessment and taking up of risks. Banks must 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.

The Bank of Slovenia will monitor compliance with the recommendation via annual questionnaires on the structure of new housing loans or in the scope of regular examinations of banking operations. Compliance with the recommendation will be assessed for the first time in 2017. When assessing compliance with the recommendation, the Bank of Slovenia will take into account the time required by individual banks to adapt their information and risk management systems.

¹Objectives and examples of instruments were defined in the Guidelines for the macroprudential policy of the Bank of Slovenia approved by the Governing Board of the Bank of Slovenia at its meeting of 6 January 2015 and updated on 10 January 2017.