Opinion of the European Central Bank of 26 August 2011 on responsible lending requirements for credit institutions (CON/2011/67)
Date: 2011-08-26
Institutions: European Central Bank
Subjects: Lithuania, consumer protection, credit, credit institution, financial stability, national law, natural person

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  responsible  lending  requirements 

(hereinafter the ‘draft resolution’). On 17 August 2011, the ECB received an amended 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  provisions1,  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 institutions and the stability of the financial 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  establish  the  responsible  lending  requirements  that 

are  applicable  to  credit  institutions  providing  credit  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 related 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  draft  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 borrower’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 maturity, and (v) rules relating to the lending process 

and conditions, including the information, to be provided to the borrower. 

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OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
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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  increasing  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 perspective, 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  property2.  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 quantitative limits, notably on loan-to-value ratios4 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 limits on loan-to-value ratios, the ECB recommends 
subjecting  them  to  a  thorough  impact  assessment  study  of  their  appropriateness5  and  regularly 

reviewing them to take into account the implications of changes in macroeconomic and financial 

conditions.  Second,  further  guidance  may  be  required  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 draft 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. Moreover, the reference periods for which the average 

credit  repayment  and  interest  contribution  pursuant  to  paragraph  16  are  calculated  should  be 

specified. 

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COM(2011) 142 final. 
ECB Opinion CON/2011/58. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 
Paragraphs 9, 10, 12 and 13 of the draft resolution. 
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%)”. 

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Foreign currency lending 

3.3  The ECB has noted6 that high levels of foreign currency loans to unhedged borrowers may create 

latent financial vulnerabilities in certain Member States. 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  negative  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,  the  ECB  would  welcome  further  details  and  an 

explanation of these proposals. For example, the information 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 amended 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 European 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 

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ECB Opinion CON/2011/58, paragraph 2.2. 
ECB Opinion CON/2010/62, paragraph 3.1.1. 
ESRB press conference – 22 June 2011. 

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