The decision on credit restrictions comes into effect on July 1

2025-05-22 07:59:00, Ekonomi CNA

The Bank of Albania has published in the Official Gazette the decision "On establishing upper limits for the indicators "loan-to-value ratio" and "debt service-to-income ratio" for loans granted by banks for residential real estate".

The decision will enter into force 15 days after publication in the Official Gazette, but will begin to be implemented by banks for new residential real estate loans disbursed from July 1, 2025.

The ceiling loan-to-value ratio in Lek will be 85% for the first home and 80% for the second home, while in foreign currency 75% for the first home and 70% for the second home.

The debt service to income ratio for loans in Lek will be at the level of 40% for the first home and 35% for the second home. In foreign currency, the ceiling level will be 35% for the first home and 30% for the second home.

To determine the value of the borrower's debt, in addition to the value of the specific loan (and other loans that he may have in the financial system), the bank will also include any other debt for which the bank has obtained reliable information from communication with the borrower or prior consultation of relevant databases.

According to the Bank of Albania, the implementation of these limits will enable the reduction of the risk of borrower failure and the reduction of banking losses related to these loans, as a result of unfavorable developments in real estate prices and in the country's macroeconomic framework, such as increased unemployment, falling incomes, increased interest rates, etc.

The Bank of Albania argues that these limits take into account and are adjusted to address risk proportionally, depending on the type of property and the currency in which the loan is granted.

However, the decision allows banks to apply exemption quotas from the above restrictions, provided that, in total, the value of exempted loans does not exceed 15% of the volume of new loans that have been approved and disbursed (even partially) during the quarter.

This exemption quota will include refinancing facilities granted during the quarter for existing loans and which may exceed the indicator limit. Banks must identify the loans and refinancing facilities included in the exemption quota individually and record them distinctly in the quarterly reporting they submit to the Bank of Albania.

In the decision, the Bank of Albania also recommends that banks implement a maximum limit on the maturity term for loan disbursement, regardless of currency, as the minimum between the 30-year term and the number of years until the borrower reaches retirement age./ Monitor Magazine