The Austrian Financial Market Authority (FMA) published its new revised “FMA Minimum Standards for the Risk Management and Granting of Foreign Currency Loans and Loans with Repayment Vehicles (FMA-FXTT-MS)” today. The information obligations of banks towards borrowers have been extended significantly, and standards for improving market transparency included for the first time, as well as a separate chapter about the risk provisions to be taken by banks. The new Minimum Standards enter into force on 1 June 2017.
“The revision and extension of our Minimum Standards on Foreign Currency Loans and Loans with Repayment Vehicles is a further step following our successful strategy implemented back in 2008 to place a de facto stop on the granting of new foreign currency loans, to limit emanating risks for private households. Consequently the outstanding volume of foreign currency loans has been reduced, adjusted for exchange rate effects, by approximately € 28 billion or more than 60%. 160,000 households have as a result already completely backed out from being exposed to foreign currency lending risk, while for the remaining 110,000 households, the supervisor has urged for further appropriate measures to be taken for limiting risk, since a considerable risk continues to exist for them, that exchange rate movements will make the repayment of the loan considerable more expensive”, commented the FMA’s Executive Directors, Helmut Ettl and Klaus Kumpfmüller.
Extended information obligations
Once the remaining time to maturity of the loan is seven years or less, the bank is required to send an annual information letter about the current amount of the loan that is still outstanding, as well as, where applicable, also the current status of the repayment vehicle. Furthermore, based on two scenarios under realistic assumptions a predicted shortfall at the end of the term of the loan must also be presented. It is recommended that the scenarios should also be depicted in graphical form. The borrower in particular is to be informed about appropriate measures for the limitation of risks, such as converting the loan into a Euro-denominated loan, the conversion of bullet loans into repayment loans, modifications to the repayment vehicle etc., and to also invite them to a personal meeting. This meeting is to be conducted based on a standardised process and involving experienced employees of the bank.
Improving Market Transparency
Banks, whose outstanding foreign currency loan volume is more than 10% of the total loans, or who are expected to have significant legal or operational risks resulting from foreign currency loans and/or loans with repayment vehicles, or who are expected to have a funding gap of at least 20%, shall be required to make certain disclosures toward the financial market, in order to provide a comprehensive picture of their risk profile. To achieve this, they will be required to regularly disclosure the outstanding volume of foreign currency loans and loans with repayment vehicles as well as what proportion of the total loan portfolio they constitute, as well as to show the expected funding gap based on justified and disclosed assumptions. Furthermore, there shall also be an optional disclosure of the amount of loans that have been classified as non-performing as well as value adjustments undertaken, a breakdown based on residual maturities of type of maturity (repayment/bullet loans) and well as an illustration about their funding structure.
Strengthening the Risk Provisioning of Banks
For the provisioning of risk (value adjustments, write-offs, reserves) a forward-looking approach is to be taken that increasingly focuses on future expected losses. The institutions may however decide for themselves whether they apply a perspective focusing on the individuals loan or the loan portfolio as a whole. They are, however, required to justify why they have decided on the approach they have taken.
The FMA-FXTT-MS are available for download on the FMA website.
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-6006
+43/(0)676/882 49 516