EBA issues Opinion on measures to address macroprudential risk following notification by the Estonian Central Bank, Eesti Pank

The European Banking Authority (EBA) today published an Opinion following notification by the Estonian macroprudential authority, Eesti Pank, of its intention to extend for a second two-year period a measure originally introduced in 2019. The measure introduces a minimum risk weight for retail exposures secured by immovable property to obligors residing in Estonia and is aimed at safeguarding the resilience of banks against the systemic risks stemming from lending to residential real estate. Based on the evidence submitted, the EBA does not object to the two-year extension of the proposed measure.

With the application of this measure, Eesti Pank extends for a two-year period the credit institution-specific minimum level of 15% for the exposure-weighted average of the risk weights applied to the portfolio of retail exposures secured by immovable property to obligors residing in Estonia. The measure applies to credit institutions operating in Estonia and using the internal ratings-based (IRB) approach for calculating regulatory capital requirements.

In its Opinion, addressed to the Council, the European Commission, and the Estonian Central Bank, the EBA acknowledged the concerns of Eesti Pank over the financial stability risks stemming from persistent housing market vulnerabilities and the changing macroeconomic environment. The EBA considers that macroeconomic and financial risks have not abated since the first extension of the measure. In addition, the EBA observes that increasing interest rates and strong inflation pose new risks to borrowers’ debt servicing capacity.

Background

In its Opinion dated 17 June 2021, the EBA did not object to the first extension of the measure for a period of two years and acknowledged the concerns of Eesti Pank over the build-up of risks in the residential real estate sector. The original measure was notified to the EBA on 15 April 2019, and the EBA provided its Opinion to the Council, the Commission, and the Member State on 15 May 2019.