CNB Relaxes Credit Ratio Limits for New Mortgages Amid COVID-19 Crisis
In light of the impact of COVID-19 pandemic, CNB Bank Board has relaxed the limits on three credit ratios used in assessing applications for new mortgages. These ratios are loan-to-value (LTV), debt service-to-income (DSTI), and debt-to-income (DTI). The relaxation is effective immediately. In context the pandemic, CNB also regards the draft law on loan moratorium to be economically justifiable. In addition, the Bank Board decided to postpone the discussion of Financial Stability Report 2019/2020 by one month to June 18, 2020 and the report is expected to be published on July 08, 2020. This is to gain more time to better quantify the impact of COVID-19 pandemic on the domestic financial sector.
Credit Ratio Limits
The decision made by the CNB Bank Board includes the following:
- The LTV limit on new mortgage loans has been relaxed from 80% to 90% and providers may apply a 5% exemption to mortgages with higher LTVs. The previous option to provide a maximum of 15% of the total volume of mortgages with an LTV between 80% and 90% has thus been abolished. The changes to the LTV ratio do not apply to "investment" mortgages.
- The recommended limit on the DSTI ratio, which expresses what proportion of an applicant's net monthly income is spent on total debt repayments, has been increased from 45% to 50%.
- The current limit on the DTI ratio has been cancelled.
Loan Moratorium
The loan moratorium law is the second legislative change to have been made during the COVID-19 pandemic. CNB highlights that the moratorium will not only allow installments to be postponed quickly and simply, but will also make it unnecessary for banks and credit unions to increase their provisions for such loans due to this postponement. CNB will monitor how the moratorium affects bank portfolios in practice and what impact it has on their liquidity situation. After the moratorium expires, CNB will focus on assessing whether banks and credit unions categorize their loans appropriately and create sufficient provisions for these loans.
Related Links
Effective Date: April 01, 2020
Keywords: Europe, Czech Republic, Banking, LTV, DTI, DSTI, COVID-19, Mortgage, Residential Real Estate, Loan Moratorium, CNB
Featured Experts
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
APRA on Changes to Reporting Obligations for Banks Due to COVID-19Related Articles
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
