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New credit curbing measures scheduled for adoption.
submited on 26.01.2006 in category Monetary policy | Macroeconomic developments
submited on 26.01.2006 in category Monetary policy | Macroeconomic developments
New measure targeting mortgage lending growth through amendments in Ordinance #8 on the Capital Adequacy of Banks has been declared by BNB. According to new requirements banks could lend without penalty up to 50% of the evaluation of real estate used as collateral. If the credit amount exceeds this share, banks have to provide additional capital in order to keep their capital adequacy at required levels.
One immediate implication of such a requirement is raising expenses for mortgage lending. This, combined with increasing cost of capital globally and credit restrictions already in force, could possibly contribute to slightly increasing interest rates on lending, or at least preservation of their current levels.
Another effect could be seen in restraining credit demand which could be classified as solvent. However, one should bear in mind that the segment of highly income customers demanding credit has been already saturated to great extent.
Generally, a consistent policy towards mortgage lending restrictions could contribute to decreasing demand on the real estate market in mid-term perspective. We distinguish clear connection between household credit expansion and internal demand on the real estate market. If this demand started to moderate as a result of limited access to credit resources, especially in a situation of decreasing external demand and growing supply of new construction, we could expect moderating growth in housing prices.
One immediate implication of such a requirement is raising expenses for mortgage lending. This, combined with increasing cost of capital globally and credit restrictions already in force, could possibly contribute to slightly increasing interest rates on lending, or at least preservation of their current levels.
Another effect could be seen in restraining credit demand which could be classified as solvent. However, one should bear in mind that the segment of highly income customers demanding credit has been already saturated to great extent.
Generally, a consistent policy towards mortgage lending restrictions could contribute to decreasing demand on the real estate market in mid-term perspective. We distinguish clear connection between household credit expansion and internal demand on the real estate market. If this demand started to moderate as a result of limited access to credit resources, especially in a situation of decreasing external demand and growing supply of new construction, we could expect moderating growth in housing prices.
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