EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 26 August 2011 
on responsible lending requirements for credit institutions 
(CON/2011/67) 
 Introduction and legal basis
 
On 29 July 2011, the European Central Bank (ECB)  received a request from Lietuvos bankas for an 
opinion on a draft resolution of the Board of Lietuvos bankas on responsib le lending requirements 
(hereinafter the ‘draft resolution’). On 17 August 201 1, the ECB received an ame nded version of the draft 
resolution from the consulting authority. 
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union, and the third and sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions
1, as the draft resolution relates to Lietuvos bankas and rules 
applicable to financial institutions insofar as they materially influence the stability of financial institutions 
and markets. In addition, the ESCB contributes to  the smooth conduct of policies relating to the 
prudential supervision of credit ins titutions and the stability of the fi nancial system under Article 127(5) 
of the Treaty. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the 
European Central Bank, the Governing Council has adopted this opinion. 
 1.  Purpose of the draft resolution 
1.1 The main purpose of the draft resolution is to est ablish the responsible lending requirements that 
are applicable to credit institutions providing cr edit to natural persons. The draft resolution is 
intended to reduce the systemic risk within the credit institution sector, imbalances in the 
development of the real estate market, risks relate d to the rapid growth of credit portfolios and the 
concentration of excess risk, as well as to provide  consumers with protection from accumulating 
excessive financial liability. Accordingly, the draf t resolution should help to contribute to the 
overall stability of the financial system. 
1.2 The responsible lending requirements established in  the draft resolution include: (i) rules for the 
comprehensive assessment of the bo rrower’s ability to meet their financial liabilities in relation to 
the credit offered; (ii) maximum acceptable loan -to-value ratios for pledged assets; (iii) maximum 
debt-to-income ratios; (iv) maximum credit matur ity, and (v) rules relating to the lending process 
and conditions, including the information, to be provided to the borrower. 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
ECB-PUBLIC  
2 1.3 The draft resolution is intended to enter into  force on 1 October 2011, except for Chapter VI 
(‘Borrower’s assessment’), which is expected to enter into force on 1 February 2012. 
 2.  General observations 
2.1 The ECB welcomes the draft resolution, which is  aimed at promoting responsible lending by credit 
institutions, enforcing market discipline, and in creasing the transparency of credit institutions’ 
activities to provide a higher level of consumer protection, especially in the area of credit for residential property. From a financial stability pe rspective, the ECB supports the measures that are 
aimed at ensuring responsible borrowing and lending, and restoring consumer confidence. 
2.2 The ECB understands that Lietuvos bankas follows the current legislative initiatives at Union level 
related to the proposal for a directive of the European Parliament and of the Council on credit 
agreements relating to residential property
2. In this context, the ECB refers to its Opinion 
CON/2011/583. The ECB understands the relevant national legislation will, if necessary, be aligned 
with the future Directive.  
 3.  Specific observations 
 Criteria for assessing consumers’ creditworthiness 
3.1 The ECB welcomes the introduction of quantita tive limits, notably on loan-to-value ratios
4 insofar 
as such measures should contribute to strengthening credit institutions’ lending practices, whilst also ensuring consistency in assessing consumers’ creditworthiness. In this respect, the ECB notes 
the following. First, as regards the quantitative li mits on loan-to-value ratios, the ECB recommends 
subjecting them to a thorough impact asse ssment study of their appropriateness
5 and regularly 
reviewing them to take into account the implica tions of changes in macroeconomic and financial 
conditions. Second, further guidance may be require d regarding the methods and criteria used to 
evaluate consumers’ creditworthiness. Such guidance should include the clarification of the requirements set out in paragraph 7.3 of the draf t resolution, according to which lending should be 
based on an assessment of ‘rational’ ratios.  
3.2 The substantive scope of the recommendations in  Chapter III should be clarified. Under the current 
wording, such recommendations refer exclusively to  lending for residential purposes, i.e. they are 
narrower in scope than the draft resolution. More over, the reference periods for which the average 
credit repayment and interest contribution pursu ant to paragraph 16 are calculated should be 
specified. 
 
                                                 
2  COM(2011) 142 final. 
3  ECB Opinion CON/2011/58. All ECB opinions are avai lable on the ECB’s websit e at www.ecb.europa.eu. 
4  Paragraphs 9, 10, 12 and 13 of the draft resolution. 
5  In the Financial Stability Review of  June 2011, the ECB highlighted that “About a third of outstanding commercial 
property mortgages in the euro area are due to mature between 2011 and 2013[…]. Many of these mortgages […] were 
often granted with high loan-to-value ratios (often 75-85%)”. 
ECB-PUBLIC  
3  Foreign currency lending 
3.3 T he ECB has noted6 that high levels of foreign currency loans to unhedged borrowers may create 
latent financial vulnerabilities in certain Member St ates. Such lending converts direct exchange rate 
exposure in the banking system into credit risk and exposes the economy to significant 
macrofinancial risks. Given the potentially negativ e side effects associated with foreign currency 
lending, the ECB emphasises the importance for policymakers taking appropriate measures to 
avoid an excessive accumulation within the banking system7.  
3.4 The ECB welcomes the stricter limitations on  the acceptable loan-to-value and debt-to-income 
ratios where the credit and income  currencies are different, which would take into consideration 
potential foreign exchange risk. However, th e ECB would welcome further details and an 
explanation of these proposals. For example, the in formation provided to the borrower should also 
include an explanation of the potential risks where the credit is denominated in a foreign currency. 
In addition, the regulatory framework could be am ended to provide incentives to credit institutions 
to offer domestic currency loans to customers, for the same purposes as foreign currency loans. 
3.5 More generally, it should be noted that the Eur opean Systemic Risk Board (ESRB), in considering 
options to reinforce the resilience of the Union financial system, has identified as one of the 
challenges the potential problems arising from foreign currency borrowing by households and 
small and medium-sized enterprises within the Union8. The outcome of the work undertaken by the 
ESRB in this regard will need to be adequately taken into consideration by the relevant national 
authorities. 
 
This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 26 August 2011. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                 
6  ECB Opinion CON/2011/58, paragraph 2.2. 
7  ECB Opinion CON/2010/62, paragraph 3.1.1.  
8  ESRB press conference – 22 June 2011.