The IMF recommends additional measures to curb the growth of real estate loans

2025-01-07 07:29:00, Ekonomi CNA

The International Monetary Fund (IMF) recommends to the Bank of Albania the application of some additional risk management requirements, in order to curb the rapid growth of real estate loans.

In an interview for "Monitor", the IMF suggests that the Central Bank establish some maximum levels allowed for the ratio between the loan and the value of the property being financed, as well as a ratio of debt service against borrowers' income (DTI). The IMF suggests that given the high percentage of unhedged foreign currency loans, such requirements can be differentiated between Lek and foreign currency loans.

"The banking sector is well capitalized and liquid in general, with prudential ratios that are significantly above regulatory requirements. While the systemic risks in Albania's financial system remain largely under control, the significant increase in mortgage loans and the continued increase in prices in the real estate sector require careful supervision," said Anke Weber, head of the IMF's mission to Albania.

The IMF has expressed concern several times last year regarding the rapid growth of loans for real estate.

At the end of October 2024, the loan portfolio for the purchase of real estate by individuals was in annual growth by 13.4%, while the real estate loan for businesses was in annual growth by 20.3%. In the absence of the depreciation of the euro in the exchange rate with the lek, the increase would have been even higher.

In the current regulatory framework for risk management for banks, quantitative limits of this type are not foreseen. The percentage of financing of the property being purchased or the ratio between loan installments and income depends on the internal risk management policies applied by each bank.

In October of this year, the Bank of Albania approved some changes in the regulation "On risk management in the activity of non-banking financial entities". Among other things, the regulation establishes for the first time a ceiling value of the loan installments in relation to the monthly net income of the borrowers. The ratio of debt service against income will be calculated as the value of the total monthly installments of existing loans, including the loan for which it is being applied for, divided by the net income of all co-borrowers.

However, this requirement is valid only for credit granted by non-bank financial institutions, while there are no regulatory restrictions for credit, whether consumer or mortgage, granted by commercial banks.

But now the IMF recommends the establishment of mandatory regulatory ceilings of some basic indicators of risk management, as a more direct way to curb the growth of credit for real estate.

In June 2024, also with the recommendation of the IMF, the Bank of Albania decided to apply for the first time a countercyclical addition to the capital adequacy ratio of the banking sector. The purpose of the countercyclical supplement is to slow down the rates of lending by the banking sector, in cases where the regulator judges that lending is growing at too fast a rate, creating increased risks for the stability of the sector.

According to the decision of the Governor, Gent Sejko, the rate of countercyclical capital addition (KUNC) for Albania will be 0.25 percentage points and all commercial banks in Albania must complete this addition after one year, starting on June 30, 2025. / Monitor magazine