ESRB published an opinion and an assessment on the notification of FIN-FSA on the extension of the period of application of a stricter national measure on residential real estate lending, under Article 458 of the Capital Requirements Regulation or CRR (EU No 575/2013). The stricter national measure consists of a credit-institution-specific minimum level of 15% for the average risk-weight on housing loans of credit institutions that have adopted the internal ratings-based (IRB) approach. FIN-FSA had informed ESRB on June 28, 2019 about its decision to extend this measure and the extension will apply from January 01, 2020 until December 31, 2020.
ESRB welcomes this one-year extension and considers that the key vulnerabilities in the residential real estate (RRE) sector in Finland are related to elevated and rising household indebtedness, the significant proportion of housing loans in the portfolio of Finnish credit institutions, the high growth in indirect real estate lending to households through housing company loans, the easing of lending standards for new loans, and the interconnectedness with the rest of the Nordic banking system. Overall, ESRB considers that extending the measure would not entail disproportionate adverse effects for the Internal Market or other financial systems. The extension would continue to prevent a decline in the risk-weights applied by Finnish IRB credit institutions to the portfolio of housing loans and its further deviation from the levels applied in other member states. Also, keeping the risk-weight floor relatively low compared with that in other EU member states should not have a disproportionate adverse effect on the Single Market and could even be seen as leveling the playing field to some degree.
Keywords: Europe, Finland, Banking, CRR, IRB Approach, Systemic Risk, Residential Real Estate, Macro-Prudential policy, Risk Weight, Credit Risk, FIN-FSA, ESRB
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