The Financial Market Stability Committee has reported no systemic risks in the banking sector, crediting effective KIM regulation for the decline in residential loan defaults. Anticipation of the regulation’s expiration has led to optimism in the banking and real estate sectors, with leaders advocating for increased home ownership. Despite concerns over rising property prices, banks are expected to maintain lending standards. The committee will continue monitoring risks in the real estate market to ensure stability.
Financial Market Stability Committee Reports No Systemic Risks
In a recent update, the Financial Market Stability Committee (FMSG) has assessed the current landscape and determined that there are no systemic risks threatening the banking sector. The effectiveness of the KIM regulation has played a significant role in this positive development, with a notable reduction in the rate of defaulted residential loans. This encouraging news was shared by the committee on Monday, bringing relief to both the banking and real estate industries.
Celebrations in the Banking and Real Estate Sectors
The FMSG highlighted that the declining trend in loan defaults, coupled with improved capitalization within the banking system, indicates that “currently no systemic risk with serious negative impacts on financial market stability from residential real estate financing can be identified.” Consequently, the committee anticipates the expiry of the regulation initially introduced in August 2022, which is set to last until June 30, 2025.
This anticipated expiration has sparked celebrations within the real estate sector and banking associations. Gerald Gollenz, the chairman of the real estate professional association, remarked that “the excessive guidelines for lending for real estate purchases have massively hindered property acquisition in Austria,” making the removal of these restrictions a welcome change. Michael Höllerer, chairman of the banking and insurance division in the Chamber of Commerce, also views this as a vital step toward encouraging home ownership and revitalizing residential construction across the country.
Further emphasizing the positive outlook, Karlheinz Kopf, Secretary General of the Chamber of Commerce, stated that the KIM regulation had imposed significant barriers to home ownership, which nearly led to a collapse in residential construction. He expressed hope for a recovery in various sectors, from furniture retail to construction-related industries.
Finance Minister Gunter Mayr anticipates that the KIM regulation will indeed expire as scheduled, allowing for increased flexibility in residential loan approvals and facilitating property creation once again. This sentiment was echoed by several ÖVP state governors, including Lower Austria’s governor Johanna Mikl-Leitner, who characterized the news as “good for all home builders.” However, Green MP Nina Tomaselli expressed concerns, arguing that skyrocketing property prices continue to obstruct the dream of home ownership for many, criticizing the ÖVP for what she sees as a lack of action on the issue.
Despite the upcoming expiration of the KIM regulation, the FMSG expects that banks will continue to adhere to the lending standards previously established. The Austrian National Bank (OeNB) and the Financial Market Authority (FMA) are set to enforce guidelines and consider adjustments such as capital buffers and risk weight increases to maintain financial stability. According to the Credit Institutions-Real Estate Financing Measures Regulation (KIM-VO), residential loans must not exceed a 35-year term, require a minimum equity share of 20 percent, and the repayment rate should not surpass 40 percent of the net income.
Looking ahead, the committee intends to focus on identifying and addressing systemic risks within the real estate market. They will evaluate the sectoral capital buffer for commercial real estate loans to ensure ongoing stability. Additionally, the countercyclical capital buffer will remain at 0 percent of risk-weighted assets, as defined by the FMA. This buffer is designed to align capital requirements with the macroeconomic climate, allowing for strategic adjustments based on economic conditions.