EN ECB-PUBLIC  
 
 
 OPINION OF THE EUROPEAN CENTRAL BANK 
of 23 June 2014 
on responsible lending requirements 
(CON/2014/44) 
 
Introduction and legal basis 
On 28 May 2014, the European Central Bank (ECB) received a request from the Magyar Nemzeti Bank 
(MNB) for an opinion on a draft MNB decree setting the maximum payment-to-income and loan-to-value 
ratios permitted in respect of consumer credit transactions (hereinafter the ‘draft decree’). 
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 sixth i ndent of Article 2(1) of Council Decision 98/415/EC1, 
as the draft decree relates to rules applicable to fina ncial institutions insofar as they materially influence 
the stability of financial institutions and markets. In  accordance with the first sentence of Article 17.5 of 
the Rules of Procedure of the European Central Ba nk, the Governing Council has adopted this opinion. 
 1 Purpose of the draft decree 
1.1 This subject matter is regulated under Hungarian law by Government Decree 361/2009
2 
(hereinafter referred to as ‘Government Decree’). As a result of the integration of the Hungarian 
Financial Supervisory Authority into the MNB on 1 October 2013, the MNB became the authority 
responsible for setting macro-prudential policy and for micro-prudential supervision of the entire 
financial market. Having obtained the competence to regulate this subject matter, the MNB has drawn up new regulations based on the provisions of the Government Decree. 
1.2 The draft decree aims to reduce (a) consumer indebtedness by preventing excessive credit growth, 
and subsequently (b) the potential systemic risk  that may arise from foreign currency lending for 
real estate investments and consumer credit, t hus contributing to the overall stability of the 
financial system. According to the explanatory memorandum, the draft decree would not excessively constrain lending, but could help prev ent the build-up of non- performing loans in the 
future, while at the same time supporting sustaina ble growth. The draft decree will apply to all 
consumer credit agreements  concluded in the territo ry of Hungary. Therefore,  the scope of the draft 
                                                 
1  Council Decision 98/415/EC of 29 June 1998 on the consultati on of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
2  See Government Decree 361/2009 (XII. 30.) on the conditio ns of prudent retail lendi ng and the examination of 
creditworthiness, published in Magyar Közlöny  No. 196 of 2009. As the ECB was not consulted on this Government 
Decree, it did not have the opportunity to issue an opinion as regards its provisions. 
ECB-PUBLIC  
2 decree covers all credit institutions, foreign bran ches and leasing companies operating in Hungary, 
and all consumers applying for credit. The new me asures are expected to enter into force on 
15 September 2014. 
1.3 Building on the provisions of the Government Decree, the MNB has decided to update, clarify and 
adjust the existing rules relating to the maxi mum payment-to-income (PTI) and loan-to-value 
(LTV) ratios permitted. The draft decree sets out comprehensive rules for the assessment of a 
consumer’s ability to service the loan requested, and sets caps on the LTV and PTI ratios in order 
to establish the creditworthiness of consumers and their capacity to withstand adverse shocks due 
to exchange and interest rate movements.  
1.4 The main changes introd uced by the draft decree can be summarised as follows. 
(a) As regards the PTI ratio, the draft decree sets caps on this ratio aimed at limiting the level of 
consumer indebtedness. These caps will cover all types of loans (mortgages, consumer credit, financial leases). In contrast to the cu rrently applicable provisions, the PTI ratio will 
be established taking into account the certifie d income, and all existing debts of the 
consumer. Accordingly, the ratio will be more favourable for consumers with higher 
incomes. 
(b) The caps on the LTV ratio will only apply to residential mortgages and car loans. The rules capping the PTI and LTV ratios will be st ricter for loans denominated in euro than for 
loans denominated in Hungarian forint, and much st ricter for all loans denom inated in currencies 
other than forint or euro.  
 
2 General observations  
2.1 The ECB has highlighted the ri sks associated with foreign curre ncy lending on several occasions
3. 
Such lending represents a major risk to financia l stability in several Member States in central and 
eastern Europe, particularly in Hungary4 where the proportion of foreign currency loans is among 
the highest in the Union. 
2.2 In recent years, several European countries ha ve implemented macro-prudential policies aimed at 
mitigating risks related to foreign currency lending.  In particular, they have adopted measures to 
increase the resilience of the financial system and prevent or mitigate the further build-up of risks 
related to housing markets and household indebt edness in a low interest rate environment5. 
2.3 From a financial stability perspective, the E CB welcomes and supports th e measures contained in 
the draft decree, as they are aimed at promo ting responsible borrowing and lending, enforcing 
market discipline, and increasing the transp arency of credit institutions’ activities.  
                                                 
3  See the ECB’s periodical Financial Stability Reviews available on its website at www.ecb.europa.eu. 
4  See Opinions CON/2010/62, CON/2011/87,  and CON/2012/27. All ECB opinions ar e published on the ECB’s website at 
www.ecb.europa.eu. 
5  See Opinions CON/2011/58, CON/ 2011/74, CON/2012/102, and CON/2013/33. 
ECB-PUBLIC  
3 2.4 In September 2011, the European Systemic  Risk Board (ESRB) issued a Recommendation6 to 
Member States with a view to increasing the effec tiveness of macro-prudential policies directed at 
addressing the risks to financial stability associated  with excessive foreign currency lending. The 
Union-wide application of this Recommendation is necessary to reduce incentives to engage in 
regulatory arbitrage, and make it more costly.7 The ECB has already advised the Hungarian 
authorities in its 2014 Convergence Report8 that ‘financial sector policies should be geared towards 
ensuring that the financial sector makes a sound contribution to economic growth, while at the same time preventing excessive credit growth in the future. In order to minimise the potential risks 
to financial stability associated with a high propor tion of foreign currency loans, it is necessary for 
Hungary to fully apply the recommendation of the ESRB on lending in foreign currencies,
 with 
which it was considered to be largely compliant  in the follow-up report published by the ESRB in 
November 2013’. 
2.5 The ECB also recommends that the MNB take note of the recently adopted Directive 2014/17/EU 
of the European Parliament and the Council9, which aims to promote responsible lending and 
borrowing and ensure that borrowers are offered affordable loans, thus reducing the need for 
recourse to foreclosure of properties. National implementation of Directive 2014/17/EU must be 
completed by 21 March 2016; hence, there is no lega l requirement to bring the draft decree in line 
with its provisions at the present time. Directive 2014/17/EU sets out provisions applicable to the 
assessment of the creditworthiness of consumers10, requirements as regards property valuations11 
and foreign currency loans12, and allows Member States to introduce further regulation of foreign 
currency loans, provided that it does not have retros pective effect. The MNB is invited to consider 
whether the provisions of the draft decree con cerning the LTV ratio fully address the future 
requirements of Directive 2014/17/EU. 
2.6 The draft decree overlaps with the provisions  of the Government Decree. As the ECB has 
previously pointed out13, and as the explanatory memorandum also states, the draft decree cannot 
repeal the Government Decree. Since the regulati on of the PTI and the LTV ratios now fall within 
the competence of the Governor of the MNB, the ECB would once again draw the Hungarian 
authorities’ attention to the need to avoid dupli cation of relevant legislation by repealing the 
Government decree in accordance with the procedur al rules applicable to Hungarian legislation. 
                                                 
6  Recommendation of the European Systemic Risk Board of 21 September 2011 on lending in foreign currencies, 
ESRB/2011/1 (OJ C 342, 22.11.2011, p. 1). 
7  See Opinion CON/2011/58. 
8  See the ECB’s June 2014 Convergence Report, in particular Chapter 5.5 on the examination of the state of Hungary’s 
economic convergence. 
9  Directive 2014/17/EU of the European Parliament and the Council of 4 February 2014 on credit agreements for 
consumers relating to residential immovable property and amending Dire ctives 2008/48/EC and 2013/36/EU and 
Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34). 
10  See Article 18 of Directive 2014/17/EU.  
11  See Article 19 of Directive 2014/17/EU.  
12  See Article 23 of Directive 2014/17/EU.  
13  See paragraph 2 of Opinion CON/2014/15.  
ECB-PUBLIC  
4  
3. Specific observations 
3.1 The ECB welcomes the stricter caps on LTV a nd PTI ratios where the credit and income currencies 
are different, which take into account potential fo reign exchange risk. However, the regulatory 
framework could be further amended to provide in centives for credit institutions to offer domestic 
currency loans to customers for the same purposes as  foreign currency loans. High levels of foreign 
currency loans to unhedged borrowers  may constitute a significant vulnerability in Member States, 
as such lending transforms the direct exposure of the banking system to exchange rate risk into 
credit risk and exposes the economy to significant m acro-financial risks. Furthermore, a high level 
of foreign currency debt may restrict the room for monetary policy manoeuvre and its 
effectiveness. As a general principle, to c ontain foreign currency lending, policy makers are 
encouraged to create an overall operating envir onment for economic agents that encourages 
prudent and well-informed decision- making by lenders and borrowers. 
3.2 The ECB welcomes the introduction of quantitative lim its, in particular the caps on the PTI ratio, as 
it should contribute to strengthening credit ins titutions’ lending practices, whilst also ensuring 
consistency in assessing consumers’ creditworthiness.  The ECB agrees with the observations of the 
MNB, as set out in the explanatory memorandum, as regards the need for constant monitoring and 
updating of the LTV and PTI ratios, and recommends subjecting these ratios to a thorough impact assessment study of their appropriateness and regul arly reviewing them to take into account the 
implications of changes in macr oeconomic and fina ncial conditions. 
 
This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 23 June 2014. 
 
 
[signed]  
The President of the ECB 
Mario DRAGHI