PRESS RELEASE
11 September 2024
Today, at its regular meeting, the Governing Council of the BNB, pursuant to Article 79, paragraph 2 and 3, (1) and (4) and Article 80, paragraph 1 of the Law on Credit Institutions, has adopted requirements with respect to the indicators on lending standards when originating and renegotiating new loans, secured by residential real estate (RRE). The requirements encompass the household sector and are applied to loans, collateralized by residential real estate, located in the Republic of Bulgaria. The requirements shall be applied on individual and consolidated basis.
1. The ratio between the loan amount and the value of the immovable property at origination (LTV-O) shall not exceed 85%. The ratio is calculated in accordance with the established minimum set of indicators for monitoring lending standards when originating and renegotiating RRE loans.
2. The ratio between the current debt service amount and the monthly disposable income of the debtor at origination (DSTI-O) shall not exceed 50%. The ratio is calculated in accordance with the established minimum set of indicators for monitoring lending standards when originating and renegotiating RRE loans.
3. The maximum term of the loan agreement (maturity) shall not exceed 30 years. The maturity is calculated in accordance with the established minimum set of indicators for monitoring lending standards when originating and renegotiating RRE loans.
The requirements enter into force on 1 October 2024. Banks and foreign bank branches shall adjust their loan origination and renegotiation practices in accordance with this date. Banks could originate or renegotiate RRE loans with parameters that deviate from the introduced requirements with a total approved or renegotiated volume during the current quarter of up to 5% of the total gross amount of the new or renegotiated RRE loans during the preceding quarter. Additional reporting is introduced to help monitoring the permissible deviations.
The BNB Governing Council decision to introduce the above requirements represents a subsequent stage of the formalised process for evaluation of RRE lending risks. The process encompasses development of methodology for the quantitative assessment of risks (heatmap), a mechanism for continuous monitoring and reporting. The related periodic analysis reveals that lending activity in the RRE segment remains elevated and lending growth accelerated further in the second quarter of 2024. The assessment shows that some indicators (credit growth, indebtedness, house price growth and overvaluation, average loan size, etc.) have shifted to a higher risk category, which signals potential build-up of medium-term risks for the banking system. While no worsening of the weighted-average lending standards is observed, the identified areas of potential vulnerabilities, related to the presence of loans within the higher intervals of the lending standards’ indicators, are still present. Thus, the activated requirements are of preventive nature and are targeted to preserve the resilience of the banking system in the context of increasing medium-term cyclical risks.
The requirements support safeguarding the stability of the banking system by complementing the existing capital buffers, set by the BNB at levels, which are among the highest in Europe. The requirements are not restrictive to the provision of credit, but follow the BNB highly conservative supervisory approach and the overall practice for the introduction of such macroprudential measures by EU countries.