Banks will be able to temporarily exclude declines in income caused by epidemic when calculating creditworthiness

Banks will be allowed to exclude months that see a temporary decline in income as a result of the Covid-19 epidemic from their calculations of consumer creditworthiness. In dealing with the extraordinary situation of the struggle against the Covid-19 epidemic, Banka Slovenije has made adjustments to its current rules stipulating that income over the preceding year is taken into account in the calculation of a consumer’s annual income before a new loan agreement is signed. The changes enter into force on 1 June 2020.

November 2019 saw the entry into force of the Regulation on macroprudential restrictions on household lending, which made the existing macroprudential recommendation a binding measure for new household loans. It set a binding cap on the ratio of the annual total debt servicing costs to the consumer’s annual income (DSTI). The Covid-19 epidemic and its economic consequences could have a major impact on consumers’ income and on their creditworthiness.

 In these circumstances, Banka Slovenije has decided to expand the regulation in the part defining how to calculate the consumer’s income, to cover cases of temporary changes in income level.

The consumer’s creditworthiness is determined with regard to the ratio of debt servicing costs to annual income. Income over the preceding year is taken into account in the calculation of the consumer’s annual income before a new loan agreement is signed. The Covid-19 epidemic has brought temporary changes in income level for many consumers, which impacts their creditworthiness over the next 12 months.

 As Banka Slovenije makes clear, when there is a temporary change in income caused by extraordinary outside circumstances, it is not reasonable to include this temporary period in the calculation of the consumer’s creditworthiness over the next 12 months.

The adjustments to the current rules allow banks to exclude the months of the officially declared Covid-19 epidemic from the calculation of the consumer’s annual income, if the income in these months was lower than before the declaration of the epidemic. Banks may exercise this option when they have at least one piece of evidence of accounted and paid income that shows that the consumer’s income is no longer being affected by the epidemic. In this event the bank calculates the consumer’s income by converting the other figures available for the last 12 months to an annual basis, where ordinary income that is typical of a particular quarter, such as leave allowance or Christmas bonus, is counted only once.

The regulation was published today in the Official Gazette of the Republic of Slovenia, and enters into force on 1 June.