What lies behind the tightening of Bank of Slovenia’s retail lending measures?
The Resolution on Retail Lending Restrictions (Resolution) applies to banks, savings banks, subsidiaries of member banks and branches of third-country banks in the Republic of Slovenia. It makes provision for two macro-prudential instruments: i) Limitation of the ratio between the annual cost of servicing all debt and the annual income of the consumer at the time of conclusion of the credit agreement (DSTI), ii) Limitation of maturity.
The limitation of the DSTI ratio applies to all retail loans (consumer and home loans).
The DSTI ratio is calculated as:
DSTI = cost of servicing all debt / annual income of consumer
The annual cost of servicing all debt includes the cost of servicing the loan and amounts of all other outstanding credit agreements (including lease agreements) with the exception of debts arising from credit cards and credit card limits. Income from all income sources as defined by the Personal Income Tax Act (ZDoh-2), which is not exempt from enforcement, is included in the annual net income of the consumer. The maximum maturity of consumer loans not secured by residential real estate may not exceed 84 months (7 years).
The Bank of Slovenia justifies the adoption of the Resolution by stating that risks associated with the growth of consumer loans have not diminished so far, and that the annual growth rates of consumer loans remains high and exceeds 10%, while the average consumer loan amount is also increasing.
The amount of credit a young family will be able to obtain, for example, depends on the income of both partners. The final calculation of borrowing power rests with lenders. The writing is most definitely on the wall that far fewer people will be able to afford to buy property.
Author: Dean Premec, senior associate
