The Central Bank (CBCG) plans to introduce new measures to banks for granting cash loans to citizens from November 15 of this year, which will mean that banks must ask their clients for better means to secure that loan compared to the current ones, "Vijesti" has learned.
For a long time, cash loans have been one of the most sought-after banking products that citizens take out for various needs and that do not require extensive documentation, but can be approved in a few days. As for the documentation, together with the loan application, an administrative ban on salary and a promissory note are sufficient. In addition, in the future, for these loans, citizens will have to attach a mortgage on real estate, a pledge on movable property, a guarantee...
According to data from the websites of Montenegrin banks, cash loans can be obtained in the amount of up to 30.000 euros with a repayment period of up to 10 years.
Unappropriated 678 million
The supreme monetary institution decided to take this step because of the large growth of those loans in the last year.
"According to the latest available data as of August 31, 8, total gross loans and receivables at the level of the banking sector amount to EUR 2019 billion. Loans to individuals (residents, credit cards and entrepreneurs) amount to 3,03 billion, or 1,3 percent of the banks' loan portfolio. Total approved cash - non-purpose loans to the population amount to EUR 43 million, while housing loans granted to this category of clients amount to EUR 678,5 million. These two types of loans represent the most significant part of the bank's loan portfolio granted to the population", it was officially said yesterday to "Vijesti u CBCG".
"Vijesti" has learned that a meeting of bankers will be organized in the Association of Banks with the Director of the Banking Control Sector at the CBCG, Dejan Vujačić, regarding the draft explanation of the decision on measures to limit the maturity of cash loans granted by banks to natural persons. "Vijesti" has access to that document.
According to the measures of the CBCG, it is written in the draft decision, it will be defined that the bank can grant a citizen a cash loan with a repayment period of more than eight years only if the loan is fully secured by a mortgage on real estate or a fiduciary (an insurance instrument that is similar to a mortgage, except that in the case of a fiduciary, the bank assumes ownership of the object of lending, and in the case of a mortgage retains the right of ownership of the property), then by pledging movable property or financial instruments that are recognized as financial collateral or a guarantee. In addition, banks that have the total amount of cash loans granted to citizens with a remaining repayment term of more than six years greater than 50 percent of their own funds, cannot approve loans with a repayment term of more than six years, except for loans secured by collateral that will be required for cash loans. loans with a repayment term longer than eight years.
Bad security
The CBCG decided on these measures because, by analyzing the credit activity of banks, it determined an intensive growth of non-purpose cash loans granted to natural persons since 2018, especially loans granted on a long-term basis.
"According to the situation on June 30, 2019, the share of cash loans with a contractual repayment period of over six and eight years in total cash loans at the level of the banking sector is 54,4 percent and 33,9 percent, respectively. The basic facts related to this credit product, which determined the need to make the proposed decision, are the unsatisfactory quality of collateral (administrative ban, promissory note), the financial position and creditworthiness of natural persons who borrow from banks, the riskiness and purpose of these loans (unknown purpose). as well as the facts related to the possibility of repayment from the aspect of the total credit indebtedness of the specific person, the duration of the credit relationship and the source of the loan repayment (limited to the duration of employment, risk in case of job loss)", it is written in the draft explanation of the decision.
It is added that it would enter into force on the eighth day from the day of its publication in the Official Gazette, and it will be applied from November 15, 2019. The deadline for application and the definitive decision will also depend on the outcome of the CBCG's discussions with bank representatives.
Similar measures in Serbia and Croatia
The National Bank of the Republic of Serbia (NBS) and the Croatian National Bank (CNB) have limited the credit expansion of cash loans.
According to the portal of Radio-television of Serbia, the National Bank of Serbia shortened the deadline for approving these loans from 10 years to eight as of January this year. Next year, such loans will be approved for seven years, and from 2021 for one less year. "Cash loans with a repayment term of more than eight years are not prohibited, but the risk of approval for a longer period than prescribed will require an additional bank guarantee," reported RTS.
According to the Croatian "Jutarnji list", the CNB adopted measures at the beginning of March that made it more difficult for banks to grant cash loans, so that in the future they will grant smaller amounts and for a shorter period of time.
For all loans they grant for a term longer than five years, the CNB recommends banks to apply the same criteria for the creditworthiness of clients, as in the case of housing loans.
Preventive decision due to the possible spillover of the crisis
In the explanation of the decision, the CBCG states that the proposed measures are aimed at increasing the resilience of the financial system and sustainable financing of citizens.
"Their application represents a preventive action to reduce the potential risk of debt growth and non-fulfillment of contractual obligations for loans, primarily for cash loans, which could occur in the eventual downward phase of the business cycle, i.e., in the event of an increase in unemployment and/or a decrease in wages. bearing in mind the current situation in the world and European economy and the possibility of an easy spillover of the crisis to Montenegro, as well as the situation in the Montenegrin economy, summarized through a relatively high and growing level of public debt in relation to GDP", the explanation states.
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