Loans will be limited

The immense indebtedness of Slovaks poses risks to the banking sector and households. As a result, the National Bank of Slovakia (NBS), the country’s central bank, plans to adopt new rules for providing home and consumer loans.

Observers expect it will cause a boom in taking the loans.

“Slovakia belongs to the countries where retail loans have been increasing the most,” said Vladimír Dvořáček of NBS, as quoted by the TASR newswire, adding that the increase amounts to double-digit numbers. “It is necessary to respond to this development in time in order to prevent unbalance.”

The NBS is dealing with potential risks. Based on their examination it plans to prepare adequate tools to regulate their development more in the future, he added.

“We do not want the increase in loans to drop, but for the annual increases to not be as high as recently,” Dvořáček explained, as quoted by TASR.

Banks currently compete for clients, offering them various loans. NBS sees a risk especially in the high share of the instalment payments comapred to the income of the client, and also high amount of a loan to the value of the collateral property, especially concerning new loans. NBS also warns of extending the loan maturity.

To prevent potential risks, NBS recommends the banks to check whether the clients will have any reserve when repaying loans from their income. Though it already introduced the recommendation in 2014, it will now become law. The reserve should amount to at least 20 percent, according to NBS.

The reason for the changes is that they want them to be applicable. Though some rules may become stricter, they will not be very stringent, said Marek Ličák of NBS.

Regarding the borrowed sum, the new rules will limit 100-percent loans. Only 10 percent of new loans should exceed 90 percent of the actual value of the property, Ličák said.

In addition, NBS will have more power when supervising banks. The fact, however, is that the banks do not have any problems with observing the currently valid recommendations, according to Ličák.

The amendment to the law on consumer loans meanwhile advanced to the second reading. The Finance Ministry also included in the legislation some recommendations of the central bank, like checking the incomes of clients, observing the limits and rules for the payment due, as well as the method of repaying consumer loans and the specification of rules for providing consumer loans via financial mediators, TASR wrote.

Though observers welcome the new rules, some warn of the effect they may cause. The banks will fight for clients more intensively, while clients will try to obtain loans under the old conditions, Miroslav Kollár from company Gepard Finance told the Sme daily.

Yet Ličák claims there is no reason for panic as the changes will be adopted gradually.