CBM Notifies ESRB and ECB on Imposing Borrower-Based Measures in Malta
CBM notified ESRB and ECB regarding its decision to impose borrower-based measures on lenders in Malta. This macro-prudential measure, which is covered in Directive No. 16 of CBM, will differentiate between two categories of borrowers—Category I and Category II borrowers. The Directive shall apply to all lenders granting domestic residential real estate (RRE) loans. This Directive shall enter into force on July 01, 2019.
The objective of the Directive is to strengthen the resilience of lenders and borrowers against the potential build-up of vulnerabilities, which could result in financial losses both to lenders and borrowers stemming from potential unfavorable economic developments. This objective is achieved by setting limits on Loan-to-Value Ratio at Origination (LTV-O), Debt Service to Income Ratio at Origination (DSTI-O) and maturities—thereby preserving sound and prudent lending standards. Loans of Category I Borrowers with a collateral market value below EUR 175,000 (excluding haircuts) are exempted from the LTV-O and DSTI-O limits specified in this Directive. Loans falling below this threshold are still subject to prudent lending policies in terms of the MFSA notice on the management of credit risk by credit institutions authorized under the Banking Act 1994 (BN/01/2002). The maturity limits apply for all new RRE loans. Lenders may implement tighter credit standards than those established in CBM Directive No.16.
For Category I Borrowers (for loans with a collateral market value exceeding EUR 175,000), the following caps shall apply:
- 90% LTV-O with a "speed limit" of 10% on the volume of loans
- 40% Stressed DSTI-O with a shock to interest rates of 150 bps
- 40 years maturity cap or the official retirement age – whichever occurs first
For Category II borrowers, the following limits shall apply:
- Gradual LTV-O phase-in—with 85% LTV-O cap, in the first year, with a "speed limit" of 20% on the volume of loans; and 75% LTV-O cap, in the years after, with a "speed limit" of 20% on the volume of loans
- 40% Stressed DSTI-O with a shock to interest rates of 150 bps
- Twenty-five-year maturity cap or the official retirement age—whichever occurs first
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Effective Date: July 01, 2019
Keywords: Europe, EU, Malta, Banking, Borrower-Based Measure, Macro-Prudential Measures, LTV, DSTI, Residential Real Estate, ECB, Central Bank of Malta, ESRB
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