VILNIUS, May 30 (Reuters) - Lithuania’s central bank said on Monday it wanted to tighten loan-to-value (LTV) ratios on mortgages to prevent new property bubbles.
Lithuania experienced a lending boom in the run up to and after it joined the European Union in 2004, fed by the Nordic banks which entered the market, SEB (SEBa.ST), Swedbank (SWEDa.ST), Nordea NDA.ST and DnB NOR DNBNOR.OL.
The global credit crunch led to a property crash, sending the economy down 14.7 percent in 2009, the second-biggest recession in the EU.
“We have drafted this document as an instrument to discipline the market, as an antidote to financial short-sightedness and new bubbles...,” said Vitas Vasiliauskas, the governor of the central bank.
He added in a statement that the aim was also to protect people taking on an excessive financial burden.
The central bank said in a statement new guidelines on responsible lending set the maximum percentage of a property’s value that is mortgaged at 85 percent.
An even more conservative LTV should be applied on loans issued in foreign currency or when buying a second residential property. The ratio for commercial real estate projects should not exceed 75 percent, the bank added.
A recent survey by the central bank showed commercial banks were easing lending requirements for the first time since 2006, and some have planned to raise LTV to 90 percent from 70-80 percent in 2010.
Bank lending peaked at 71.4 billion litas ($29.54 billion) in the last quarter of 2008, with residential property loans were up by almost 25 percent year-on-year to 20.8 billion litas, the data on the central bank’s web site showed.
Since then, the total loan portfolio has contracted to 57.7 billion litas by the first quarter of this year.
Lending is expected to pick up by 4-5 percent this year, a survey of commercial banks has shown. (Reporting by Nerijus Adomaitis; Editing by Toby Chopra)