Adjustment of consumer lending measure
Banka Slovenije has adjusted its macroprudential measure that imposes restrictions on consumer lending. The change rectifies the impact of the rise in the minimum wage in reducing the creditworthiness of certain borrowers, and resolves the issue of limited access to credit on the part of borrowers with below-average income. The aim in so doing is maintaining the balance between protecting consumers and banks, and ensuring access to credit. Banka Slovenije was able to make the changes after an adjustment to legislation in the National Assembly, and they will enter into force on 1 July.
The National Assembly amended the Macroprudential Supervision of the Financial System Act in late March, since which creditworthiness has no longer been tied to legislation in the area of enforcement. The amendments to the law were adopted at the proposal of the Ministry of Finance and Banka Slovenije, who warned in the wake of the latest minimum wage rise in January that the creditworthiness of borrowers with below-average income had been significantly reduced.
The amendments allowed Banka Slovenije to adjust the binding macroprudential measure in connection with restrictions on consumer lending. This has been in force since November 2019, and was adjusted in May 2022. Its purpose is to put in place minimum credit standards for new loans, and to limit excessive borrowing by consumers.
The key changes, which enter into force on 1 July of this year, are as follows:
(i) The new lower limit on creditworthiness will now be based on the minimum cost of living (plus an amount for family dependants), which is adjusted as necessary for the general level of inflation and other factors.
The calculation of the minimum cost of living is drawn up every six years for the Ministry of Labour, Family, Social Affairs and Equal Opportunities (most recently last year) by the Institute for Economic Research. The amount will be adjusted as necessary at Banka Slovenije in line with the general level of inflation and other factors, with any changes being published in the Official Gazette of the Republic of Slovenia. A minimum creditworthiness amount of EUR 745 will apply as of July.
(ii) Child benefits and certain other social security benefits, which previously had been excluded, will also be included in the calculation of the consumer’s annual income.
A consumer who has a family dependant must have sufficient income to cover the prescribed amount for the family dependant after meeting their monthly obligations. Child benefits and certain other social security benefits will now be included in the consumer’s annual income.
(iii) A simplification is also being introduced: a cap on DSTI (a cap on the ratio of the consumer’s annual debt servicing costs to their annual net income) in the amount of 50%, irrespective of the level of income.
(iv) In light of the aforementioned adjustments to the minimum credit standards, the level of allowable exemptions from the cap on DSTI is being reduced (from 10% to 3%).
The sectoral systemic risk buffer, which entered into force this year, also remains in force, with the aim of ensuring financial stability. This ensures that banks have adequate capital at their disposal to strengthen resilience to the risks inherent in consumer lending and developments on the real estate market.
Banka Slovenije will continue regularly monitoring the evolution of risks in the banking system and other circumstances in this area, and adjusting our macroprudential policy and macroprudential instruments as appropriate.