To promote sustainable and prudent lending, Latvijas Banka has revised its Regulation on Credit Risk Management. It will enter into force on 1 January 2024.
Latvijas Banka’s Regulation replaces the Financial and Capital Market Commission's Regulation on Credit Risk Management No 242 of 22 December 2020.
Sustainability aspects are introduced in the Regulation. To motivate borrowers to choose energy-efficient housing, thereby promoting a development of more energy-efficient housing stock, as well as a renovation of buildings, lending standards have been alleviated for loans granted for a purchase of a dwelling with an energy efficiency class C or higher. The maximum debt service-to-income (DSTI) ratio for such loans is set at 45%, while the maximum debt-to-income (DTI) ratio is set at 8 times.
A more flexible approach with regard buy-to-let housing loans or other housing loans generating income from real estate activities. 70% loan-to-value (LTV) limit for such loans has been made eligible for the flexibility quota. 70% LTV requirement for housing loans where the borrower's income from real estate exceeds 20% of total income has been abolished, and the restriction that the borrower's income from real estate should only be taken into account at 70% has been removed. They have been replaced with a qualitative requirement to assess the credit risk of such a borrower prudently.
In addition, the possibility of transferring credit commitments of customers from one credit institution to another has been facilitated: the rules have been supplemented by a requirement for a credit institution to establish in its internal regulatory documents the criteria under which it requires a new collateral assessment from the borrower in order to be able to properly assess the credit risk associated with the transaction.
The minimum prudential provisioning requirements have been amended to set the same minimum provisioning conditions for all loans (irrespective of when they are granted). This approach is in line with the approach applied by the European Central Bank's Single Supervisory Mechanism to significant supervised institutions.
Interested parties are invited to see the Regulation on the website likumi.lv.