24/11/2021

The Central Bank of Malta publishes amended text of CBM Directive No. 16

The Central Bank of Malta published today an updated version of CBM Directive No. 16 on Borrower-Based Measures. This update mainly reflects changes emanating to transitional provisions that have now come into force as well as feedback received by the banks. The changes also reflect some drafting refinements and clarifications.

The main amendments effected in Directive No. 16 incorporate the below:

• Amendments to the definitions for both Category I and II borrowers to clarify that borrowers falling under these two categories are not only limited to those borrowers purchasing a RRE property but also include loans for the purpose of construction, restoration, improvement and/or finishing of an RRE. In this regard, adjustments to the definition of the terms 'Loan' and 'Residential Real Estate Loan' have also been effected for consistency purposes.
• Amendments to the definition applicable only to Category I borrowers have been made in cases where additional loans taken on the same primary residence with an outstanding RRE loan, solely for the purpose of construction, restoration, improvement and/or finishing the RRE property but excluding Independent Units, are also classified under Category I, provided that there are no other outstanding RRE loans falling under Category II. It was further clarified that the above requirements are also applicable in case of remortgage loans.
• New definitions have been inserted for the terms 'Independent Units' and 'Remortgage Loan'.
• Minor amendment to the term 'Borrowers' in order to widen the scope to prospective borrowers.
• Reference to the phasing-in arrangements of the LTV-O ratio has been removed and instead reference is only made to the fully operational 75% LTV-O ratio.
• Addition in paragraph 17 of another pension age category to include persons born on or before the year 1951, for whom the retirement age is 61 years. This is also reflected in the “Summary of Borrower-Based Measures” table.
• A new paragraph (paragraph 18) provides flexibility to lenders who may, at their discretion and in line with their internal risk policies, lend to persons beyond retirement age, conditional on: i) the borrower’s ability to proof a stable income from employment or other own sources of income; ii) the lender conducts an assessment on whether the aforementioned income or other sources of income is to subsist throughout the duration of the loan; and iii) provided the other conditions of the Directive relating to LTV, DSTI and maturity limits are met.  This is also reflected in the “Summary of Borrower-Based Measures” table.
• Amendment to paragraph 19 of the Directive on the submission of the internal and external audit reports to clarify that the submission of the internal audit verification report is not obligatory when the timing coincides with the 3-year cycle where credit institutions must submit a verification report by their external auditor.

A copy of the Directive showing the amendments mentioned above is available in red ink here for ease of reference.

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