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.
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.
Effective Date: April 01, 2020
Keywords: Europe, Czech Republic, Banking, LTV, DTI, DSTI, COVID-19, Mortgage, Residential Real Estate, Loan Moratorium, CNB
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