Austria’s Financial Market Authority FMA published an extension of its Minimum Standards on Foreign Currency Loans and Loans with Repayment Vehicles today. The aim of the extension is to impose very strict criteria on the granting of new foreign currency loans to private consumers. In addition, banks must develop strategies on how to reduce the existing high volumes of outstanding foreign currency and repayment vehicle loans before they mature and on a long-term basis. The FMA Minimum Standards stipulate in no uncertain terms that “foreign currency loans to private consumers are not suitable as a mass product” and are “particularly unsuitable as a standard home finance product”.
Every bank must prepare a written document on how it plans to reduce the outstanding volume of foreign currency and repayment vehicle loans over the long term. The risk development of the loans must be continuously and closely monitored, and customers must be informed about the options available to them to limit their risk exposure. The banks must also offer feasible alternatives to any current foreign currency and repayment vehicle loans. It does, however, go without saying that the credit agreement can only be changed with the customer’s consent. Banks’ internal auditing units must carry out regular checks to ensure compliance with the in-house strategy on foreign currency loans. Meanwhile, the granting of new foreign currency loans must be based on the strictest criteria: for example, the customer must have a regular income or other appropriate proceeds in the same currency, or be a high net worth individual with an excellent credit standing. The bank must also have guidelines in place to safeguard the refinancing of new loans. Moreover, foreign currency loans must no longer be granted with a single, fixed maturity date in combination with a repayment vehicle.
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 or lifetime loans and/or advance financing for a deceased person’s estate, or similar. 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).
Each new foreign currency loan and each new loan with a repayment vehicle must adhere to strict criteria with regard to credit assessment, and is subject to increased information obligations towards the customer, particularly with regard to the consequences associated with delayed payment and shortfalls in cover by the repayment vehicle.
FMA Minimum Standards do not constitute a regulation in the legal sense but are recommendations from the supervisory authority on how to properly limit risk. They are based on the FMA’s statutory mandate, according to which the Authority should be concerned with the national economic interest and a stable financial market (Article 69 para. 1 of theBankwesengesetz – BWG; Banking Act), and are linked to the due diligence requirements of managers as specified in Article 39 BWG.
For further information please contact
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0676)/882 49 516