As of November 2019, the Bank of Slovenia is changing the recommendation into a binding one in the area of consumer lending, placing caps on the maturity of consumer loans, and the ratio of the annual debt servicing costs to the borrower’s net income.
The Bank of Slovenia published a document regarding binding measures for household lending. According to the Bank of Slovenia, Commercial banks, savings banks and branches of foreign banks will be required to uphold the two Bank of Slovenia requirements as of November of this year:
- A cap on the ratio of annual debt servicing costs to the borrower’s net annual income (DSTI): This ratio may not exceed: (a) 50% for borrowers whose income is less than twice the gross minimum wage, and (b) 67% for the part of the borrower’s income in excess of this threshold. The borrower must be left with no less than the net minimum wage after servicing the debt. The amount is raised as appropriate for borrowers with dependent family members.
- Limit on maturity: consumer loans may not be approved with a maturity of more than 7 years.
The Bank of Slovenia finds that the risks associated with the growth in consumer loans have not diminished, even after the extension of the macroprudential recommendation.
As a reminder, in September 2016 the Bank of Slovenia introduced the non-binding macroprudential recommendation for the area of housing loans. As of November 2019, the Bank of Slovenia is changing the recommendation into a binding one in the area of consumer lending, placing caps on the maturity of consumer loans, and the ratio of the annual debt servicing costs to the borrower’s net income (DSTI). The second requirement also applies to housing loans.
Growth in consumer loans remains high, (+11.7% YoY as of August), while the average value of consumer loans is also increasing.
The Bank of Slovenia further notes that average maturity of new consumer loans has also increased in recent years. In 2015, the maturity of new consumer loans stood at 5.6 years, while by August of this year that figure lengthened to 7 years. The amount of consumer loans whose maturity is more than 10 years is further increasing, that being +90% since 2015, amounting to EUR 516m in August of this year. The longest maturities of consumer loans are exceeding 12 years. The Bank of Slovenia also notes that almost a quarter of new consumer loans in terms of value are failing to comply with the recommendations.
It is important to note that the Bank of Slovenia will allow for the possibility of certain deviations from the binding requirements, although they may comprise no more than 10% of the value of new consumer loans or housing loans for the cap on DSTI, and no more than 15% of the value of new consumer loans for the limit on maturity.
Consumer Loans in NLB Group
In H1 2019, NLB Group provided new consumer loans in the amount of EUR 198.8m, representing an increase of 18% YoY. Meanwhile the share of consumer loans in all gross loans increased to 28% (+2 p.p. YoY). Of those, an increase of EUR 92.2m YoY can be attributed to the Slovenian market, indicating that the SEE market was the primary driver of growth in consumer loans. In H1, consumer loans in Slovenia amounted to EUR 656.5m, accounting for roughly 8.5% of the Group’s gross loans. These loans in H1 2019 bared an interest rate of 6.29% (+0.52 p.p. YoY). In the same period, housing loans in Slovenia amounted to EUR 1390.2m (+3% YoY). It is hereby challenging to predict the long-term effect of the new measures of Bank of Slovenia. We believe that it is possible that the mentioned segment will record a slowdown in the future, however it is important to note that the banks future growth is expected to come mostly from the corporate segment as well as the SEE region. Therefore, the mentioned measure should not have a signifficant impact on the banks future performance.
