Recommendation (FMSB/2/2024) for facilitating the management of the regulation for sustainable lending standards for residential real estate financing (KIM-V)

40th meeting, March 12, 2024

In its 40th meeting, the Financial Market Stability Board (FMSB) discussed the design of the exemption buckets in light of the latest data on lending standards and developments in relevant conditions, recommending that the FMA simplify the design of the exemption buckets in the regulation for sustainable lending standards for residential real estate financing (KIM-V).

The FMSB points to the aim of the regulation, which is to maintain financial stability through sustainable lending. Long-term housing affordability should not come at the cost of higher debt burdens for borrowers. Incentivizing households to take out higher loans has regularly led to real estate crises internationally, which eventually resulted in costly effects for society and the economy. Thanks to the KIM-V, lending standards in Austria have improved markedly.

The FMSB notes that the loans actually exempted from the provisions of the KIM-V are significantly higher than the nominal exemption buckets and that they are also high by international standards. Apart from exemptions for small loans and bridge loans, it is possible to use the previous or current period as the assessment basis for the exemption buckets. In addition, minimum exemption buckets have been introduced that are particularly relevant for small banks. The last two provisions are meant to ensure planning certainty with respect to loans that do not comply with the KIM-V ceilings.

Moreover, the FMSB stresses that the exemption buckets allow banks to grant loans that comply with internal lending standards but whose design does not align with the more general requirements of the KIM-V. Sustainable lending in accordance with the KIM-V criteria remains the norm.

In the recommendation FMSB/2/2022 of March 1, 2022, the design of the exemption buckets balanced the need to reduce the buildup of systemic risks with the need to offer banks adequate operational flexibility. To facilitate the management of the exemption buckets, the FMSB advises the FMA, based on Article 23h Austrian Banking Act, to amend the KIM-V so as to provide for a single institution-related exemption bucket of 20% of new lending and to abolish the indicator-specific exemption buckets.