Bank of Italy consultation on borrower loan limits could lead to opportunities for direct lenders | Hogan Lovells
[co-authors: Giulia Geraci, Alessandro Nicolini]
The latest consultations launched by the European Banking Authority (EBA) and the Bank of Italy on regulatory capital requirements for banks may open up opportunities for alternative lenders, as traditional financiers may face constraints and constraints. increased financing costs in some sectors or jurisdictions.
On April 28, the Bank of Italy published a Consultation focused on :
- the introduction of a systemic risk buffer (SyRB) for banks and banking groups authorized in Italy. The SyRB is envisaged by the EU Capital Requirements Directive and Credit Risk Regulation, to counter risks that are not addressed by other capital conservation and countercyclical buffer regulations. This subject was dealt with in the EBA guidelines EBA / GL / 2020/13 of last September, and
- Borrower-based limits on new loans, tailored to the conditions of specific customers, industries or regions. The Bank of Italy proposed limitations in the form of:
- loan to value ratio;
- loan-to-income ratio;
- debt / income;
- the debt service to income ratio;
- debt to assets (leverage ratio);
- limits on the overall duration of loans; and
- loan amortization requirements.
This development does not follow from EU law, which means that these limitations would not be harmonized across EU Member States, although these steps were both recommended internationally by initial solicitations issued by the International Monetary Fund in March 2020.
The focus on banks’ capital requirements in the face of systemic and other risks is not surprising at this time, as the market and regulators prepare for the consequences of COVID-19. Of course, any new or increased capital requirement will affect the ability of banks to compete in the lending market, as public subsidies and government support implemented by special legislation in recent months will disappear.
In particular, limiting the amount that can be loaned to individual borrowers based on their personal circumstances is a major proposition.
Although it is difficult to predict the outcome, the Bank of Italy consultation could shape the Italian lending market in a significant way, with a considerable impact on various regions or industrial sectors, and a possible effect on the appetite of consumers. lenders for credit risk in different phases of the business cycle. Some borrowers may have their access to bank credit restricted due to the inclusion of borrower constraints, which could offer alternative lenders the opportunity to compete with traditional financiers. As the consultation develops, it will be interesting to see if this will have an impact on the supply and market share of direct lenders in Italy.