Macroprudential measures related to retail loans granted by credit institutions
At its meeting held on 28 December 2021, the CBCG Council adopted the Decision on Macroprudential Measures Related to Retail Loans Granted by Credit Institutions (OGM 138/21). This decision repeals the the initial Decision on Macroprudential Measures Related to Retail Banking Loans (OGM 58/19 and 107/20) that targeted the same issue.
The measures were adopted with the aim of establishing the sustainability of retail lending, in the context of preserving financial stability by the CBCG. Namely, in recent years, we have witnessed a notable growth in the amount of cash loans, their share in total loans, as well as the extension of maturities of these loans (see Box 3 in Financial System Stability Report for 2018). As a rule, only bills of exchange and administrative bans were used as the security for retail loans. Continuation of this trend could make credit institutions much more vulnerable in the event of an economic and financial crisis, which would directly affect borrowers' earnings and reduce their credit capacity, which would further affect credit institutions and possibly their willingness to extend loans and the terms and conditions of those loans. The aforesaid decision will be applied as of 1 January 2022 and it will be valid for one year.
Basically, the decision stipulates that credit institutions may grant retail cash loans with a maturity exceeding eight years only against quality collateral in the form of immovable and movable property or in any other adequate way. Furthermore, credit institutions whose amount of retail cash loans with a residual maturity of over six years exceeds 50% of their own funds may grant retail cash loans with a maturity of more than six years only against the abovementioned collateral. Finally, credit institutions whose share of non-performing cash loans in total cash loans with agreed maturity over six years that have not been properly collateralized is below 3.5%, may grant cash loans whose maturities may exceed the aforesaid eight year and six year maturities respectively, for 2 additional years.
Interim Measures to Mitigate Negative Impact of the Communicable Disease Covid-19 Epidemic and the Situation in Ukraine on the Financial System
Decision on Interim Measures to Mitigate Negative Impact of the Communicable Disease Covid-19 Epidemic on the Financial System (OGM 138/21) was adopted at the CBCG Council meeting held on 28 December 2021. It was subsequently amended on 17 May and 9 June 2022 (OGM 54/22, 62/22) and adopted under the title Decision on Interim Measures to Mitigate Negative Impact of the Communicable Disease Covid-19 Epidemic and the Situation in Ukraine on the Financial System. Prior to that, three decisions were in effect: Decision on Temporary Measures to Mitigate the Negative Effects of the Novel Coronavirus on the Financial System (OGM 19/20, 28/20 and 42/20) being the first one, followed by the Decision on Interim Measures to Reduce the Negative Consequences of the Effect of the Novel Coronavirus Epidemic on the Financial System after Mitigation of Measures to Protect the Population from Infectious Diseases (OGM 46/20), and the Decision on Interim Measures to Mitigate the Negative Effects of the Communicable Disease COVID-19 Epidemic on the Financial System (OGM 80/20, 105/20, 24/21, 33/21, 45/21, 53/21 and 116/21) as the third in a series of four decisions passed by the CBCG in order to target the negative effects of the coronavirus pandemic on the financial system from its outbreak to date.
The latest decision on interim measures groups several measures targeting negative consequences of the coronavirus pandemic on the financial system. The most important of these measures is the restructuring of retail loans that is to be allowed to natural persons whose finances have been significantly affected by the pandemic, in the manner specified by the decision. Restructuring is optional for debtors but it is obligatory for the creditor if the debtors apply for it and if they meets all the conditions. Basically, restructuring can be carried out by extending the loan repayment period by a maximum of five years, if the debtor has lost their job as a result of the pandemic, their earnings have been reduced by at least 10% or they were not paid their earned net wages for more than three months before submitting the restructuring application.
The interim measures include, inter alia, 1) a ban on the payment of dividends to shareholders of credit institutions other than payments in the form of shares of a credit institution; 2) allowing credit institutions, until 31 December 2022, to exclude 70% of accumulated unrealized losses incurred after 25 May (after the first amendments of the aforesaid Decision entered into force) from the calculation of CET1 capital items when valuing available-for-sale debt instruments determined in accordance with IFRS 9, which are included in other comprehensive income; and 3) a reduction from 12% to 6% (annually) of fees to be paid by credit institutions to the CBCG for using the prescribed amount of their reserve requirement which has not been returned on the same day.