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Slovenian regulator sets binding measures for banks to curb consumer loans

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Slovenian regulator sets binding measures for banks to curb consumer loans

Slovenia's central bank decided to tighten conditions for the issuance of consumer loans, pointing to excessive credit growth in the segment.

Starting from November, banks will not be allowed to offer consumer loans with maturity periods exceeding seven years. In addition, the debt-service-to-income ratio, measuring the annual cost of debt servicing in relation to the annual net income of the borrower, cannot exceed 50% for borrowers with income less than 2x the gross minimum wage or 67% for earners above 2x gross minimum wage.

This debt-service-to-income requirement will apply to both consumer and home loans.

The limits will be binding for all commercial banks, savings banks and branches of foreign banks operating in Slovenia. In addition, Banka Slovenije said it will maintain its existing 80% loan-to-value limit on mortgage loans in the form of a recommendation.

The Slovenian regulator said it decided to tighten measures for consumer loans after earlier nonbinding recommendations on the matter failed to curb annual lending growth, which remains above 10%. The central bank also pointed to the growing average maturity of new consumer loans, which is longer than 12 years in some cases. "Such developments are of particular concern in the context of a slowdown in economic activity, which is also reflected in the labor market," the regulator said in its Oct. 9 filing.

The central bank said it will regularly review whether newly approved loans comply with the requirements and that it will initiate action against banks in case of violations.