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Bahamas Central Bank relaxes lending rules for residential mortgages

(Loop)- The Central Bank of The Bahamas (CBTB) says it is relaxing the guidelines for domestic banks and credit unions on the minimum equity injection requirement for residential mortgages.

It said while this is not anticipated to have a significant impact on personal lending, it should reduce the cost burden for suitably qualified borrowers and allow some additional individuals to qualify for credit.

“With immediate effect, the mortgage indemnity insurance is removed from the Central Bank’s stipulation for borrowers to qualify for a reduced equity or down payment amount on residential mortgages,” the bank said.

The CBTB said that in the absence of the insurance, the minimum down payment for such mortgages was 15 per cent.

“Moreover, in line with the Central Bank’s relaxed rules for other personal lending, issued in August 2022, financial institutions may also vary or set lower down payment requirements for residential mortgages, in line with their internal frameworks for assessing and managing individual borrower risks.”

The CBTB said however, lending institutions are directed to observe that personal lending is still subject to the borrower’s total debt service ratio remaining within a prudent limit of 50 per cent.

“The exceptions are debt restructurings and/ or consolidations for borrowers who are already indebted beyond this threshold, and for whom outstanding obligations are not increased as a result of the restructuring and/ or consolidations.”

The Central Bank is also reminding lending institutions “to exercise continued prudence around the amount of credit extended as a percentage of the appraised valuation of the real estate, or the resulting loan-to-value (LTV) ratio”.

It said that the LTV ratio also determines the risk-weighted treatment for mortgages when estimating banks’ capital adequacy.

“In particular, in accordance with The Bahamas Capital Regulations, 2022, residential real estate exposures are weighted at either 25 per cent, 50 per cent, or 100 per cent, respectively, according to whether the LTV is less than or equal to 60 per cent, between 60 and 80 per cent, or exceeds 80 per cent.”

The Central Bank said it would continue to monitor the impact of credit trends on the outlook for the external reserves and domestic financial stability.

“If conditions justify interventions, the Central Bank may tighten or relax the minimum qualification standards for new credits or enhance any of its macro-prudential or micro-prudential tools as deemed necessary. At present, neither monetary policy nor financial stability concerns are heightened,” it said.

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