site.btaCentral Bank Introduces Three New Mortgage Loan Requirements

The Bulgarian National Bank (BNB) announced new standard lending requirements for mortgage-backed housing loans during a regular meeting of its Governing Council, BNB said on its website Wednesday. This is stipulated in the requirements with respect to the indicators on lending standards when originating and renegotiating new loans, secured by residential real estate (RRE), based on texts in the Credit Institutions Act.

The requirements encompass the household sector and are applied to loans collateralized by residential real estate, located in the Republic of Bulgaria. The requirements shall be applied on individual and consolidated basis.

The ratio between the current debt service amount and the monthly disposable income of the debtor at origination (DSTI-O) shall not exceed 50%.

The amended regulations stipulate that the ratio between the loan amount and the value of the immovable property at origination shall not exceed 85%. BNB clarified that the ratio is calculated in accordance with the established minimum set of indicators for monitoring lending standards when originating and renegotiating RRE loans.

The maximum term of the loan agreement (maturity) shall not exceed 30 years. The maturity is calculated in accordance with the established minimum set of indicators for monitoring lending standards when originating and renegotiating RRE loans.

The requirements enter into force on October 1, 2024. Banks and foreign bank branches shall adjust their loan origination and renegotiation practices in accordance with this date. Banks could originate or renegotiate RRE loans with parameters that deviate from the introduced requirements with a total approved or renegotiated volume during the current quarter of up to 5% of the total gross amount of the new or renegotiated RRE loans during the preceding quarter. Additional reporting is introduced to help monitor the permissible deviations.

The BNB Governing Council's decision to introduce the above requirements represents a subsequent stage of the formalized process for evaluation of RRE lending risks. The process encompasses development of methodology for the quantitative assessment of risks (heatmap), a mechanism for continuous monitoring and reporting. The related periodic analysis reveals that lending activity in the RRE segment remains elevated and lending growth accelerated further in the second quarter of 2024.