Opinion of the European Central Bank of 23 June 2014 on responsible lending requirements (CON/2014/44)
Date: 2014-06-23
Institutions: European Central Bank
Subjects: Hungary, consumer credit, financial stability, foreign currency, indebtedness, national law

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 indent of Article 2(1) of Council Decision 98/415/EC1, 

as the draft decree 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. 

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Purpose of the draft decree 

1.1  This  subject  matter  is  regulated  under  Hungarian  law  by  Government  Decree  361/20092 

(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,  thus  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 prevent the build-up of non-performing loans in the 

future,  while  at  the  same  time  supporting  sustainable  growth.  The  draft  decree  will  apply  to  all 

consumer credit agreements concluded in the territory of Hungary. Therefore, the scope of the draft 

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Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
See  Government  Decree  361/2009  (XII.  30.)  on  the  conditions  of  prudent  retail  lending  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. 

 
 
 
 
 
                                                 
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decree covers all credit institutions, foreign branches and leasing companies operating in Hungary, 

and  all  consumers  applying  for  credit.  The  new  measures  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  maximum  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 introduced 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 currently applicable provisions, the PTI ratio will 

be  established  taking  into  account  the  certified  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 stricter for loans denominated in euro than for 

loans denominated in Hungarian forint, and much stricter for all loans denominated in currencies 

other than forint or euro.  

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General observations 

2.1  The ECB has highlighted the risks associated with foreign currency lending on several occasions3. 

Such lending represents a major risk to financial 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 have 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 indebtedness in a low interest rate environment5. 

2.3  From a financial stability perspective, the ECB welcomes and supports the measures contained in 

the  draft  decree,  as  they  are  aimed  at  promoting  responsible  borrowing  and  lending,  enforcing 

market discipline, and increasing the transparency of credit institutions’ activities.  

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4  

5  

See the ECB’s periodical Financial Stability Reviews available on its website at www.ecb.europa.eu. 
See Opinions CON/2010/62, CON/2011/87, and CON/2012/27. All ECB opinions are published on the ECB’s website at 
www.ecb.europa.eu. 
See Opinions CON/2011/58, CON/2011/74, CON/2012/102, and CON/2013/33. 

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2.4 

In  September  2011,  the  European  Systemic  Risk  Board  (ESRB)  issued  a  Recommendation6  to 

Member States with a view to increasing the effectiveness 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 proportion 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 legal 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 retrospective effect. The MNB is invited to consider 

whether  the  provisions  of  the  draft  decree  concerning  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 regulation 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  duplication  of  relevant  legislation  by  repealing  the 

Government decree in accordance with the procedural rules applicable to Hungarian legislation. 

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10  
11  
12  
13  

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). 
See Opinion CON/2011/58. 
See the ECB’s June 2014 Convergence Report, in particular Chapter 5.5 on the examination of the state of Hungary’s 
economic convergence. 
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  Directives  2008/48/EC  and  2013/36/EU  and 
Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34). 
See Article 18 of Directive 2014/17/EU. 
See Article 19 of Directive 2014/17/EU. 
See Article 23 of Directive 2014/17/EU. 
See paragraph 2 of Opinion CON/2014/15.  

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3. 

Specific observations 

3.1  The ECB welcomes the stricter caps on LTV and PTI ratios where the credit and income currencies 

are  different,  which  take  into  account  potential  foreign  exchange  risk.  However,  the  regulatory 

framework could be further amended to provide incentives 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 macro-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  contain  foreign  currency  lending,  policy  makers  are 

encouraged  to  create  an  overall  operating  environment  for  economic  agents  that  encourages 

prudent and well-informed decision-making by lenders and borrowers. 

3.2  The ECB welcomes the introduction of quantitative limits, in particular the caps on the PTI ratio, as 

it  should  contribute  to  strengthening  credit  institutions’  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  regularly  reviewing  them  to  take  into  account  the 

implications of changes in macroeconomic and financial 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 

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