Has BNB tightened mortgage lending?

There is no real tightening by the Bulgarian National Bank (BNB) in the credit market for mortgage loans. At the beginning of the week the Bulgarian National Bank decided to introduce quarterly monitoring of commercial banks on six indicators. Is anything changing for consumers?

Bulgaria's central bank ordered banks to tighten standards in mortgage lending

The BNB's report does not take into account an unfavourable situation on the property market, financiers explain. There is no overheating in terms of lending.

"According to the BNB's conclusion, there is no such overheating in terms of lending, but it does not analyse what state the mortgage market is in. It cannot be said that in this analysis there are substantial recommendations to the banking system to tighten or loosen, but we see a warning from the BNB that it will monitor this market and if necessary intervene," said Julian Voinov, a finance expert.

Atanas Velikov works as a computer programmer in Rousse with a family of four and is holding off on credit for now.

"These criteria scare me a lot! At this stage I decide to wait, the risk is too big!", Atanas Velikov said.

However, the criteria that the BNB will monitor more closely are not new. The Association of Banks points out that the capital liquidity of banks is above the EU average, and the sector will comply with the regulator's measures. The BNB's indicators are part of the customer assessment models.

The banking system in the country is characterised by high levels of capital adequacy and liquidity, which are above the EU average. It is strictly regulated and complies with all regulatory requirements. The banking sector accepts the measures proposed by the BNB and will comply with their implementation. Elements related to the indicators specified by the BNB are still included in the credit assessment models.

"This is a criterion, according to which the requirement of the banks is about 50% of the debt to income. We don't have any tightening. The other criterion the banks are looking at is how much the loan is as a percentage of the value of the property. In more cases it is around 80-85%. So, the banks require a serious self-participation", states Yanko Tsenov, credit consultant.

There is also no need for the BNB to set a credit ceiling, analysts explain, as banks lend at about 80% collateral of the property price, but this percentage varies according to the risk assessment.

"The idea is for the bank, through this percentage, which requires a personal contribution from the client to reduce the risk and make the property more liquid in a future sale," says Yanko Tsenov, a credit consultant.

The BNB report, however, does not examine the impact of customers with combined mortgage and consumer credit, experts say.

"The question of whether consumers with mortgage loans also have a second consumer loan, which would change the analytical point of view. Mortgage loans are in the order of 20% of the entire loan portfolio of the banking system, but since we are talking about a mortgage market that is specific to households and individuals, in reality 50% of the loans of households are in mortgage loans and a little unwinding of interest rate policy, entering the Eurozone, conducting monetary policy by the ECB could change the whole situation," says Julian Voynov, a financier.

The recommendation is for borrowers to set aside funds to avoid default.