The Polish Financial Supervision Authority issued a recommendation setting out good practice principles for retail credit risk management by the banking sector, known as 'Recommendation T', which will come into force within a few months.
Recommendation T is the PFSA's response to a deterioration in the quality of the banks' household lending portfolio from 2008 Q4 onwards, especially in relation to consumer credit.
It comprises 25 recommendations covering management, risk, security interests, reporting, client relationships and internal audit.
These aim to secure the interests of both borrowers and lenders through a more rigorous evaluation of prospective borrowers' credit ratings and credit worthiness. They include requirements for banks to:
- shape their lending policies in such way as to take into account fluctuations in the economy and their impact on borrowers' repayment obligations
- use databases and IT support systems as well as analytical tools to acquire information about loans and credits
- keep risk control, monitoring and reporting independent from sales activities
- take a floating charge over assets whose value can be estimated over the agreement's term
- inform customers before entering into a credit facility agreement about the risks and costs involved, particularly where lending is in a foreign currency
Serious doubts have been expressed about some recommendations, such as limiting lending to no more than can be serviced by 50% or 65% of a household's net monthly income. Commentators point out that this could disqualify those on the lowest incomes – around 3 million people – from the banking market.
Commentators also emphasise that implementing the recommendations will be very expensive for the banks; however, this will depend on the extent of risk management processes involved.
Financial institutions expected to benefit from the recommendations include those that wholly or partly fall outside PFSA supervision. This includes co-operative savings banks, credit unions (SKOK) and other quasi-banks and Polish branches of banks whose registered seat is in another EU member state.
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The original publication date for this article was 13/04/2010.