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
UK Authorities Consult on Implementation of Basel 3.1 Standards
The UK authorities have published consultations with respect to the Basel requirements for banks. The Prudential Regulation Authority (PRA) published the consultation paper CP16/22 on rules for the implementation of Basel 3.1 standards.
ESAs Issue Multiple Regulatory Updates for Financial Sector Entities
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
FSB and NGFS Publish Initial Findings from Climate Scenario Analyses
The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.
FSB Issues Reports on NBFI and Liquidity in Government Bonds
The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.
ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
EBA Finalizes Methodology for Stress Tests, Issues Other Updates
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
EU Finalizes Rules Under Crowdfunding Service Providers Regulation
The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.
OSFI Sets Out Work Priorities and Reporting Updates for Banks
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
APRA Finalizes Changes to Capital Framework, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
