Repeated incorrect representations on the part of certain market players have prompted Austria’s Financial Market Authority (FMA) to describe for consumers, once again, the key components of its Minimum Standards for Foreign Currency Loans (FC loans) and for Loans with Repayment Vehicles (RV loans) – including extensions thereof – and to clarify misconceptions and distorted representations. The purpose of these FMA Minimum Standards is firstly to impose very strict criteria on the granting of new foreign currency loans to households and secondly to oblige the banks to develop strategies for sustained reduction of the current high volume of outstanding FC and RV loans. They are also intended to limit the risk which these highly speculative products entail for borrowers.
The FMA Minimum Standards unequivocally stipulate that “foreign currency loans to private consumers are not suitable as a mass product” and are “particularly unsuitable as a standard home finance product”.
The FMA Minimum Standards for existing FC and RV loans
The FMA Minimum Standards oblige every bank to prepare a written document on how it plans to reduce the volume of its outstanding FC and RV loans over the long term. In addition, and among other things, the banks must:
- Continually and accurately monitor the risk development of every loan and inform the customer of ways in which they can limit their risk.
- They also have to make other suitable offers as alternatives to the current FC and RVloans.
- Of course the loan agreement can only be altered with the customer’s approval.
Any forced conversion or adjustment of fees depends on the contractual agreement between bank and customer is to be assessed on a case-by-case basis and, if necessary, is to be clarified before a civil court. The FMA Minimum Standards do not stipulate anything in this regard.
The FMA recommends that banks develop individually tailored solutions, together with the customer, for the changeover to euro-denominated financing.
The FMA Minimum Standards for granting new FC and RV loans
The granting of new FC loans must be based on the strictest criteria:
- For instance a regular income or other adequate form of revenue in the same currency,
- or else the customer must be a wealthy private customer with an excellent credit rating.
- The bank must also have guidelines in place to safeguard the refinancing of new loans.
- Moreover, FC loans must no longer be granted with a single, fixed maturity date in combination with a repayment vehicle.
- Each new FC loan must adhere to particularly strict criteria regarding credit rating and is subject to increased information obligations towards the customer, particularly regarding the consequences of delayed payment and shortfalls in cover by the repayment vehicle.
Also, euro-denominated loans with a single, fixed maturity date should now basically only be granted to consumers in justified cases, for example in the case of Lombard loans, inter‑generational loans, lifetime loans and/or advance financing for deceased persons’ estates and the like. The granting of euro-denominated loans with a single, fixed maturity date and a repayment vehicle for accumulating capital requires enhanced diligence (selective list of repayment vehicles, strict monitoring of ongoing performance).
FMA Minimum Standards do not constitute a regulation in the legal sense, but are instead the supervisory authority’s recommendations on how to properly limit risk. They are based on the FMA’s statutory mandate to be concerned with the national economic interest and the stability of the financial market (Article 69 para. 1 of the Bankwesengesetz – BWG; Banking Act), and are linked to the due diligence requirements of managers as specified in Article 39 BWG.
They can be found on the FMA website fma.gv.at under Legal Foundation/Minimum Standards.
For further information please contact
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0676)/882 49 516