BANKS will be able to grant loans without collateral or guarantors under the new directive to be discussed between the Central Bank and financial institutions.
The draft directive was sent to market players on January 5 and aims at simplifying procedures for granting loans and relaxing criteria that made it even more difficult to get a loan.
The Directive comes at a crucial time for banks as they are trying to balance capital losses from non-performing loans with the need for boosting the economy with new lending.
Focus on repayment ability
Based on the Directive, greater emphasis will be given on the assessment of the repayment capacity of the new credit facilitation while the provision for full collateral coverage of all credit facilitations, is removed.
In that regard, the criterion of the “loan to value” ratio for granting new credit facilitations is deleted and now rests with the credit institution to assess the level of satisfactory own contribution which reflects the risk of each credit facility.
At the same time, the criterion of “loan to income” ratio is replaced as a criterion for assessing the repayment capacity for natural persons with the rate of 80% of available income. Available revenues are calculated based on data presented in the statement of personal financial data and represent the net income remaining after the deduction of all expenses and taxes of the household which are reduced by 20% to cover unforeseen expenses without consequences in the repayment ability.
It is noted that the proposed directive limits collateral and personal guarantees to the coverage of specific credit facilitations for which they are taken.
As stated in the Directive, because of known problems that have arisen from excessive and without adequate assessment acceptance of personal guarantees but also due to the weakening value of personal guarantees as a result of regulations in relation to the insolvency framework, it appears that the continuing demands for personal guarantees is inappropriate and is therefore no longer provided in the Directive.
Foreign currency loans
Provisions relating to foreign currency loans to individuals are also modified in order to comply with the provisions of the EU Directive 2014/17/EU.
The Directive entitles the borrower to convert the contract into an alternative currency, his income currency, or the currency of the Member State in which he resides or both. The exchange shall happen based on the rate of the day the borrower applies for the conversion or as otherwise specified in the contract. The credit institution must inform the borrower in writing on a regular basis, at least when the total outstanding loan balance is increased by 20% due to the exchange rate. These procedures must be included in the offer letter and in the contract and where there is no provision for limiting the risk of the borrower by fluctuations in the exchange rate, the offer letter should include an example regarding the impact of a 20% fluctuation.
The provisions of the Directive are modified, aiming at the proper separation of the responsibilities of estimators, quantity surveyors and architects/civil engineers.
The proposed Directive also incorporated the guidelines on credit rating, recently issued by the European Banking Authority.
The directive also amends the need for the borrowers to provide a bunch of information.
The amount of information proposed to be provided by borrowers is significantly reduced and it is provided that after receiving the information, credit analysts exercise their judgement taking into account the complexity of each case, the estimated risk as well as the adequacy of information and documents already available. For this purpose, a specific reference is made to the utilization of information presented on the main mechanism of exchange, collection and provision of data.
Also, the information provided by credit institutions to the customer before the conclusion of a new credit facilitation agreement are slightly differentiated according to relevant provisions of the EU Directive 2014/17/EC on credit agreements for consumers, for buildings used for dwelling purposes, which was put into force in March 2014 and is going to be implemented on March 21, 2016.
Procedures for financing real estate mortgages have also been reviewed to conform to the provisions of the (special performance) laws on the sale of real estate of 2011 and 2012.