It has come to the attention of the Central Bank that many banks are introducing various loans against property schemes as mortgage loans, in violation of Regulations Regarding Mortgage Loans, Circular No. 31/2013 dated 28/10/2013 (Regulation 31/2013).

The following guidelines are issued to ensure that banks and finance companies comply with the above Regulations, as well as, Regulations Regarding Bank Loans & Other Services Offered to Individual Customers, Circular No. 29/2011 dated 23/2/2011 (Regulation 29/2011).

1. Under Article 1 of Regulation 31/2013, a mortgage loan is defined as: ‘A loan that is collateralized against a residential property granted for the purpose of constructing, purchasing or renovating a house for owner occupier or investment purposes. It also includes loans granted for the purchase or the development of land for these purposes.’ This was further clarified by Central Bank’s Notice No. 22/2017 dated 17/1/2017 (copy enclosed).
    
2. Any other personal loans granted by banks and finance companies using property as collateral for purposes other than those stated in the above definition must not be classified as a mortgage loan and hence fall to be treated in accordance with the provisions of Regulation 29/2011.
    
3. Accordingly, banks and finance companies are not allowed to extend the tenor of such loans beyond 4 years and must not take private houses as security for personal loans, as per Article 15-5 of Notice No 2901/2011 dated 28/4/2011 (copy enclosed).
    
4. Banks and finance companies must ensure, in case of any personal and mortgage loans, that the DBR does not exceed 50% or 30% (in the case of retirees) of salary or regular income as the case may be. As soon as the bank/company is aware that a borrower is retired, immediately the DBR must be reduced to 30% as per Article 7-2 of Notice No. 2901/2011 dated 28/4/2011.
   
    In addition, in case of salary reduction for reasons other than retirement, the bank/company could adjust the DBR to 50% of the reduced salary by extending tenor, as per Article 20-3 of Notice No. 2901/2011 dated 28/4/2011, and in both cases, no bank or finance company should provide additional facilities/funds when the remaining tenor of personal/mortgage loans exceeds the respective regulatory limits.
    
5. Personal and mortgage loans should not be structured as an overdraft (OD).

Please abide by the above guidelines and ensure full compliance with the above two Regulations at all times.