In order to promote sustainable and thoughtful lending, the Bank of Latvia has revised the Credit Risk Management Regulations. They will enter into force on January 1, 2024.
The regulations of the Bank of Latvia replace the regulations of the Financial and Capital Market Commission of December 22, 2020 No. 242 “Regulatory provisions of credit risk management”.
The new regulations introduce aspects of sustainability. In order to motivate borrowers to choose energy-efficient housing, thereby promoting the development of a more energy-efficient housing stock and also the renovation of buildings, lending standards have been eased for loans issued for the purchase of housing with a building energy efficiency class of C or higher. Maximum debt service expenses against income (debt service-to-income (DSTI)) indicator for such loans is set at 45%, while the maximum ratio of debt to annual income (debt-to-income (DTI)) indicator – 8 times.
A more flexible approach was also introduced regarding loans to natural persons for the purchase of a home with the aim of renting it out or otherwise earning income from real estate activities. 70% of the loan amount against the value of its collateral (loan to value or LTV) indicator for such loans, the possibility of using the flexible deviation is determined. The quantitative LTV requirement of 70% for home loans where the borrower’s income from real estate exceeds 20% of the total income has been abolished, and the restriction that determined that the borrower’s income from real estate should be taken into account in the amount of only 70% has been abolished. They have been replaced by a qualitative requirement to cautiously assess the credit risk of such a borrower.
In addition to the aforementioned, the recrediting of customer credit obligations from one credit institution to another has been facilitated – the rules have been supplemented with a requirement for the credit institution to set the criteria in its internal regulatory documents by which it requests a new collateral assessment from the borrower, so that it can properly assess the credit risk associated with the transaction.
The requirements for the minimum level of savings for prudential purposes have been changed, setting the same conditions for the minimum level of savings for all loans (regardless of when they were granted). This approach is in line with the approach applied by the Single Supervisory Mechanism of the European Central Bank to significant supervised institutions.
We invite those interested to familiarize themselves with the rules on the website likumi.lv: https://likumi.lv/ta/id/348613-kreditriska-parvaldisanas-noteikumi.
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2023-12-28 09:22:26
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