In a recent announcement, the Central Bank of Uzbekistan unveiled plans to tighten requirements for issuing consumer, mortgage, and car loans to the population. The proposed changes aim to address concerns about rising debt levels among borrowers and promote responsible lending practices. The head of the department of methodology for regulating the activities of credit institutions at the Central Bank, Sanjar Nosirov, highlighted the introduction of a new indicator, the debt burden of the population, as a pivotal measure in this initiative, Spot reported.
Debt Burden Indicator
According to the plan, effective from July 1, 2024, the debt burden limit will be set at 60%, subsequently decreasing to 50% from 2025 onwards. This indicator, already utilized in microcrediting, will help evaluate informal income sources and guide commercial banks toward more responsible lending practices.
Income Assessment
The debt burden indicator takes into account various income sources over the last six months, including wages, pension payments, contributions to a savings account, income received in a bank account, taxes paid, and interest, dividends, and lease payments. For loans with repayment periods exceeding 36 months, the average monthly income is calculated for the same duration.
Mortgage Loan Terms
The Central Bank also plans to enforce a standardized loan term for mortgage loans, setting it at 120 months (10 years). This move is aimed at providing a more stable and predictable environment for both borrowers and lenders in the real estate market.
Exceptions for 15% of Loan Portfolio
Loan/Collateral Ratio and Credit Risk
Differential Risk Assessment
Recognizing higher risks in the car loan market, the regulator justified the need for a lower loan/collateral ratio for car loans. Nosirov acknowledged the potential for artificially high car prices due to limited supply, noting that the automobile market can experience more significant price fluctuations compared to real estate.
Starting from July 1, 2024, the Central Bank will assess the borrower’s credit risk for consumer, mortgage, and car loans. A measurement scale incorporating the loan/collateral ratio and the debt burden indicator will be used to evaluate different types of lending.
Public Discussion and Applicability
First Deputy Chairman of the Central Bank, Nodirbek Saidullaev, announced that the proposed bill would be open for public discussion on the SOVAZ portal in the coming days. Emphasizing that the new requirements will apply only to commercial banks and microfinance organizations connected to the Credit Information Bureau system, Saidullaev admitted that certain types of lending, including gray installment plans, would not be subject to these new restrictions.
The proposed changes aim to strike a balance between facilitating access to credit and preventing unsustainable debt levels within the population.
Earlier Daryo mentioned that Central Bank of Uzbekistan recently released a report on banking sector consumer supervision, exposing a worrisome surge in regulatory breaches, particularly concerning loans, deposits, and bank card transactions. As per the report, nearly 48% of all infractions are associated with loans, with 29% linked to deposits, and 23% involving bank card transactions. This breakdown highlights the imperative for heightened scrutiny and regulatory measures in these sectors.
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