Cape Verde Central Bank to Tighten Lending Rules by 2029
The Bank of Cape Verde (BCV) has unveiled a new strategic roadmap to regulate household lending, introducing strict limits on loan-to-income ratios and property collateral values to safeguard the nation’s financial stability. These measures are expected to be fully implemented by late 2029.
New Safeguards for Homeowners and Lenders
In a move to curb excessive debt and minimize the risk of financial default, the central bank’s board of directors approved the roadmap for “borrower-based macroprudential instruments” on October 30. The new regulations will primarily target new credit agreements for households, focusing on two critical financial metrics.
First, the BCV will establish a maximum Loan-to-Value (LTV) ratio. This limit restricts the amount a bank can lend relative to the appraised value of the property used as collateral. By ensuring properties hold sufficient value against the loans they secure, the central bank aims to mitigate potential losses for financial institutions if a borrower defaults.
Second, the regulator will introduce a Debt Service-to-Income (DSTI) limit. This cap will restrict how much of a borrower’s monthly income can be allocated to loan repayments, preventing families from overextending their finances and ensuring they retain enough liquidity for daily expenses.
IMF Commitments and Implementation Timeline
The introduction of these measures fulfills a key commitment made by the BCV under the International Monetary Fund’s (IMF) Extended Credit Facility (ECF) program. The program is designed to strengthen Cape Verde’s economic resilience and promote sustainable fiscal policies.
According to the BCV’s indicative schedule, the new limits will officially enter into force by the end of 2029. This timeline includes a deliberate adaptation period, allowing commercial banks and financial institutions to adjust their lending practices. Following implementation, the central bank will move into a phase of rigorous monitoring to evaluate the real-world impact of these policies on the housing market and the broader economy.
Image: Pexels – Rossinei Franco
