Opinion of the European Central Bank of 20 September 2011 on lending to natural persons (CON/2011/74)
Date: 2011-09-20
Institutions: European Central Bank
Subjects: Romania, consumer protection, credit institution, financial stability, loan, national law, natural person

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 20 September 2011 

on lending to natural persons 

(CON/2011/74) 

Introduction and legal basis 

On  5  September  2011,  the  European  Central  Bank  (ECB)  received  a  request  from  Banca  Naţională  a 

României (BNR) for an opinion on a draft regulation on lending to natural persons (hereinafter the ‘draft 

regulation’).  

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 indent 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 regulation relates to rules applicable to financial 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 Bank, the Governing Council 

has adopted this opinion. 

1.  

Purpose of the draft regulation 

1.1  The  main  purpose  of  the  draft  regulation  is  to  update  lending  requirements  applying  to  credit 

institutions  that  provide  loans  to  natural  persons,  with  a  view  to  financial  stability.  The  draft 

regulation covers loans for real estate investments and consumer credit. It is part of the prudential 

measures  limiting  risks  related  to  the  indebtedness  of  natural  persons.  It  is  intended  to  reduce 

systemic risk within the banking sector, as well as to protect consumers against excessive financial 

liability. Accordingly, the draft regulation aims to contribute to the overall stability of the financial 

system. 

1.2  The  requirements  for  lending  to  natural  persons  provided  for  in  the  draft  regulation  include: 

(a) rules  to  assess  a  borrower’s  ability  to  meet  its  financial  obligations;  (b)  maximum  acceptable 

loan-to-value  ratios  for  real  estate;  (c)  minimum  guarantee-to-loan  ratios  for  consumer  credit 

denominated or indexed in a foreign currency; (d) maximum credit maturity for consumer credit; 

and (e) rules relating to the lending process and conditions, including information to be provided to 

borrowers (such as booklets with warnings on the possibility and consequences of an increase of 

the credit cost if exchange rate risk materialises) and clear information in the credit agreement or 

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OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
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reimbursement  schedule  on  the  possibility  of  an  increase  of  the  amounts  to  be  repaid  should 

exchange  rate  risk  or  interest  rate  risk  materialise.  The  definitions  of  loans  for  real  estate 

investment purposes and consumer credits are also provided, so that the amended framework will 

cover all credit provided to natural persons. 

2.   General observations 

2.1  BNR  has  informed  the  ECB  that  Romania  intends  to  establish  by  31  October  2011  measures  to 

balance  the  currency  structure  of  loans  granted  to  natural  persons  in  the  context  of  the  financial 

assistance  programmes  concluded  with  the  International  Monetary  Fund  and  the  European 

Commission.  In  view  thereof,  the  consulting  authority  invokes  reasons  of  extreme  urgency  and 

asks  the  ECB  to  deliver  its  opinion  by  20  September  2011.  The  ECB  would  like  to  draw  the 

consulting  authority’s  attention  to  the  fact  that  according  to  the  second  sentence  of  Article  4  of 

Decision 98/415/EC, the ECB must be consulted ‘at an appropriate stage’ in the legislative process. 

This implies that the consultation should take place at a point in the legislative process that affords 

the ECB sufficient time to examine the draft legislative provisions and to adopt its opinion in the 

required language versions and which also enables the relevant national authority to take the ECB’s 

opinion into consideration before these provisions are adopted.  

2.2  The ECB welcomes the draft regulation, 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 real 

estate  investment.  From  a  financial  stability  perspective,  the  ECB  supports  the  measures  that  are 

aimed at ensuring responsible borrowing and lending, and restoring consumer confidence. 

2.3  The ECB understands that BNR 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 

3.1  Criteria for assessing consumers’ creditworthiness 

The  ECB  welcomes  the  introduction  of  quantitative  limits4  insofar  as  such  measures  should 

contribute to strengthening credit institutions’ lending practices, while also ensuring consistency in 

assessing  consumers’  creditworthiness.  As  regards  the  quantitative  limits  referred  to  above,  the 

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COM(2011) 142 final. 
All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
Article 11 and Article 13(1) of the draft regulation. 

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ECB recommends subjecting them to a thorough impact assessment study of their appropriateness5, 

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

financial conditions and complementing them, if necessary, with other measures (for instance, the 

provision of maximum debt-to-income ratios).  

3.2  Foreign currency lending 

3.2.1  High  levels  of  foreign  currency  loans  to  unhedged  borrowers  may  create  latent  financial 
vulnerabilities in certain Member States6. Such lending converts direct exchange rate exposure in 

the banking system into credit risk and exposes the economy to significant macro-financial 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.  Generally,  there  is  a  need  to  ensure  that  strict  and 

prudent  regulatory  and  administrative  measures  are  in  place  for  lending  to  unhedged  domestic 

borrowers in a foreign currency. In addition, banks should always hold sufficient capital to reflect 

the  specific  risks  associated  with  foreign  currency  lending,  in  particular  as  regards  the 

transformation of exchange rate risk into credit risk. 

3.2.2  The ECB welcomes the stricter limitations on the acceptable loan-to-value ratios where the credit 

and  income  currencies  are  different,  which  would  take  into  consideration  potential  foreign 

exchange  risk.  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.  

3.2.3  More generally, 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 account by the relevant national authorities. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 20 September 2011. 

[signed] 

The Vice-President of the ECB 

Vítor CONSTÂNCIO 

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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%)’. 
See paragraph 2.2 of Opinion CON/2011/58. 
Paragraph 3.1.1 of Opinion CON/2010/62. 
ESRB press conference of 22 June 2011. 

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