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Tomas Garbaravičius, advisor to the chairman of the board of the Bank of Lithuania, considered that the application of the slow creditors exemption could be explained by a lack of appetite for credit risk and some additional administrative or operational burdens.
The application of the exemption must be constantly monitored, assigning quotas to the departments so that the amount of said credits does not exceed 5%. the total amount of mortgage loans made by the lender during the calendar year. This is not so simple, since it is necessary to monitor both the numerator (loans granted with exception) and the dynamic denominator (the total amount of mortgages granted).
Furthermore, according to the Loan Regulations, the creditor must have reasonable and sufficient proof that, in a particular case, more than 40%. but not to exceed 60%. The application of the debt service to income ratio (DSTI) does not violate the principles of responsible lending; In other words, a client looking for a mortgage will be able to pay up to 60% of all loans. monthly income. And this also creates additional administrative work.
At the same time, the small application of the exemption shows that banks maintain a moderate appetite for credit risk ”, lrytas.lt commented T. Garbaravičius.
Whether the bank agrees to exempt the client is already a matter of agreement between the parties. As competition intensifies, banks are likely to be more inclined to apply the exemption or even to offer it more actively at the standard 40% rate. Borrowers who do not meet the DSTI requirement.
The interviewee suggested that banks would be more inclined to apply such an exemption to less risky loans in several respects, such as higher income clients who, even after paying a relatively large monthly fee for other expenses, have a sufficiently large absolute amount of loans. money.
Valid from 2015
An exception is allowed for loans with a higher DSTI in 2015. It was introduced together with several provisions that tightened the Responsible Lending Regulation: the maximum loan term was reduced from 40 to 30 years and a requirement was introduced to assess whether the DSTI would not exceed 50% if the interest rate on the loan increased to 5%.
“By tightening these requirements, it made sense to allow some flexibility to take more account of exceptional cases. Therefore, the use of the exemption up to 5% allowed. It could basically be normal practice.
On the other hand, the use of this exemption is currently small, so if it were increased to the permissible level, while maintaining a high flow of loans, it would be one of the symptoms that the housing credit market, and possibly the housing market is heating up, ”said T. Garbaravičius.
According to him, it is likely that in such a case, banks will also apply an exception for riskier loans according to various characteristics, both in assessing the collateral and the credit risk of the borrowers themselves. At the same time, it would be a sign that the Bank of Lithuania needs to assess the situation in the housing and housing credit markets in detail and possibly take additional macroprudential market cooling measures.
Don’t see the need
Saulius Abraškevičius, a representative of Swedbank, the bank that issues the largest number of mortgage loans, referred only to the possibility of applying exemptions due to more lenient responsible lending requirements, but Swedbank uses this practice very rarely, as it is not necessary.
Andrius Kvakšys, Director of Mortgage Credit Product at Banco Hipotecario, noted that there are no such loans in the bank’s loan portfolio and never have been.
“Responsible lending provisions allow financial institutions to grant a loan in exceptional cases, provided that the total amount of liabilities does not exceed 60%. Luminor Bank believes that such exemptions make customers too vulnerable.
We always apply 40 percent. Obligation rule, because we want to be sure that financial obligations will not affect the client’s ability to guarantee the necessary conditions for a dignified and quality life.
Using more than half of the monthly income to pay off loans makes the client’s position very vulnerable if their work, health or family circumstances change.
In fact, we also did not record the claim for such an exemption; apparently the clients themselves are clearly aware of the risk of over-indebtedness, ”said A. Kvakšys.
Sonata Gutauskaitė-Bubnelienė, member of the Board of SEB bankas and director of SEB Baltic Retail Banking, stated that the bank she represents applies the exemption from the requirements for responsible lending in cases where it has reasonable and sufficient evidence that it exceeds 40 %. the loan-to-income ratio will not violate the principles of these loans and the amount of such loans issued during the year will not exceed 5%. new home loans made during that year.
“Experience has shown that, in many cases, people who meet these conditions borrow less than the allowable income-contribution ratio, but in cases where the amount they want to borrow exceeds the allowed limit, there is not always enough , reasonable and sufficient evidence that the Responsible Loan will not be violated “, – said S. Gutauskaitė-Bubnelien SE adding that SEB Bank, applying the exception of the provisions on responsible lending, provides about a small percentage of the loans.
