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The Bank of Albania approves the regulation that tightens microfinance lending

2024-10-03 10:48:02Biznes SHKRUAR NGA REDAKSIA VOX

The Bank of Albania approves the regulation that tightens microfinance lending

In yesterday's meeting, the Bank of Albania approved some changes in the regulation "On risk management in the activity of non-bank financial entities", which are expected to bring a significant tightening in the lending practices of microfinance institutions. The draft regulation was sent to interested parties for consultation only in the second half of last month, while with an accelerated and unusual process in the decision-making of the Bank of Albania, the changes were approved at the meeting on October 2.

According to the official announcement, these changes came within the package of regulatory changes for the protection of consumers, as a reaction of the Bank of Albania to some issues encountered in the market where these institutions operate.

The Bank of Albania states that the amendments to the regulation define general principles in the process of performing the financial analysis of consumer borrowers, where special emphasis is placed on the assessment of the sustainability of the borrower's income and payment capacity, as well as the prevention of fraudulent lending practices. irresponsible to avoid unnecessary financial hardship and over-indebtedness situations for consumers. The changes envisage the inclusion of some additional requirements for assessing the solvency of borrowers in consumer credit contracts for non-bank financial entities in the lending activity and for microcredit financial institutions, including the obligation for entities before granting a loan and throughout its duration to carry out the assessment of the solvency of consumers, based on sufficient, accurate and updated data and information, which must be reasonably verified by the entity. Also part of the changes is the addition of a requirement for non-bank financial entities that purchase problem loans, which at the time of classification of the portfolio of these loans cannot be classified as non-problem loans, if the repayment of loan installments the purchase is made through a loan. These changes take effect on January 1, 2025.

Maximum DSTI increased from 40% to 60%

The approved version of the new regulation has not been published yet, however, according to "Monitor" sources, the Bank of Albania has agreed to reflect some comments argued by financial institutions.

The most important change compared to the initial variant, put out for consultation, is that the debt service ratio against income (DSTI) will have a ceiling level allowed of 60%, from 40% that was in the variant put out for consultation. consultation.

Based on the provisions of the regulation, a non-bank financial institution will not be allowed to grant more than two consumer loans to the same borrower at the same time.

The financial institution, in calculating the income for the purpose of assessing the solvency of the consumer, considers his income based on the data of at least the last 6 months before the moment of performing the financial analysis. In the case of expected income, the increase in income will be considered only when there is written evidence.

The regulation also provides for more detailed and rigorous risk management requirements on consumer lending.

The financial institution, before concluding a loan contract and during the process of monitoring the loan in its duration, must assess the solvency and risk profile of the borrower, based on sufficient, accurate and up-to-date data.

The new requirements, which envisage a detailed assessment of the ability to pay, are expected to make it very difficult to grant loans with only an identity document within very fast timeframes (within a few minutes), a practice that is widely followed by some consumer microfinance institutions.

Other explicit limitations provided in the regulation are that non-bank financial institutions cannot enter into consumer credit contracts with persons under the age of 18; they cannot conclude consumer credit contracts with persons qualified as disabled, or with persons who make decisions under the assistance of another person, restrictions which affect the non-repayment of the loan obligation; they cannot conclude consumer credit contracts during the 22:00 to 07:00 hours; cannot conclude consumer credit contracts with persons who appear in the registers created by entities for persons who are not allowed to conclude a credit contract.


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