Controversy Surrounds Review of Banks’ Granting of Loans by Financial Market Authority

The announcement by the Financial Market Authority (FMA) that it would review the banks’ granting of loans caused astonishment – to put it mildly – among financial institutions: “Populist rhetoric is not helpful. We are in the process of collecting all the figures, data and facts. Then If necessary, the rules can be changed or tightened up,” said Willibald Cernko, Erste Bank boss and federal branch chairman for banking and insurance in the Chamber of Commerce (WKÖ), to the APA.

“The FMA has every opportunity to check the loans. Banks have the obligation to provide information about the opportunities and risks. And the FMA could check. And if an institution does not adhere to the rules of the game, it can intervene,” Cernko understands The renewed discussion about mortgage loans and their restrictions (KIM regulation) does not. “If a family decides to only go on vacation once a year and invest in a property, they should have the choice,” Cernko added in an interview with APA.

However, Cernko considers the comparison of lending in this country with the insolvency of Lehman Brothers and its consequences, as FMA board member Helmut Ettl did on Monday, to be a polemical contribution. “We have to get back to a sensible conversation,” the banker is convinced.

“Leave the Ivory Tower”

In an initial reaction, Lower Austria’s governor Johanna Mikl-Leitner (ÖVP) sided with the banks and borrowers. “I expect the FMA boards to leave their ivory tower and finally adapt their rules to reality,” emphasized the state governor. “We want normal earners to continue to be able to afford housing.” After all, having your own roof is the best retirement provision. Of course, it would also be “smart” to discuss extending the repayment periods, said the state governor. For people at the beginning of their working life, a period of 40 years is “easily feasible”. A longer repayment period would “further noticeably reduce” the monthly burden for home builders, said the state governor.

“Demand has fallen massively since mid-2022”

But there are also calls from business for a relaxation of the regulation: “The KIM regulation was intended to prevent the feared overheating of the real estate market – there can no longer be any question of that: the demand for real estate loans has fallen massively since mid-2022 and weakened further in the first half of 2023,” said Robert Jägersberger, chairman of the master builders’ association. “As a result of the sharp rise in interest rates and the continued high levels, this trend will continue without the need for an additional KIM regulation,” he explained in a press release.

The Association of Austrian Project Developers (Vöpe) announced through its executive committee spokesman Andreas Köttl: “It cannot be the case that one can no longer afford property in Austria and that the FMA, as the authority responsible for the KIM regulation, is so ignorant of the situation and so stubborn remains. We are therefore once again calling for a radical defusing of the current rules,” said Köttl’s statement.

“Home builders let down”

The SPÖ, on the other hand, can gain something from the FMA’s position: “The ÖVP does not want to do anything about the high interest rates, as the SPÖ is demanding, it is letting the house builders down with unaffordable loans and is now demanding that banks should grant real estate loans that the borrowers can never repay because of the high interest rates – and in the end the bank takes the house,” criticized SPÖ finance spokesman Jan Krainer. “This is ÖVP in its purest form, the people lose, the bank always wins.”

The KIM regulation with the rules for granting housing loans was approved by the Financial Market Stability Committee, i.e. the Ministry of Finance, the National Bank and the FMA together.