Last Updated on 19 March 2020, 15:00 CET
Due to the developments regarding the outbreak of COVID-19 and the declaration of a state of emergency in Serbia, the National Bank of Serbia (“NBS”) undertook emergency measures to facilitate the position of citizens and businesses in servicing debts. The two decisions on temporary measures (the “Decisions”) were adopted on 17 March 2020 for the protection of debtors under loan and leasing agreements in times of crisis:
- Decision on temporary measures for the protection of the stability of the financial system; and
- Decision on temporary measures for leasing providers with the aim to protect the stability of the financial system,
The Decisions are effective from 18 March 2020 and English versions are available on the website of the NBS.
The NBS imposed an obligation on local banks and financial leasing providers to offer a moratorium on loan and leasing repayments during the state of emergency. The moratorium applies to all debtors – individuals, farmers, entrepreneurs and companies – and imposes a standstill period in repayment for at least 90 days, i.e. no less than the duration of the state of emergency. This means that the debtors can defer repayments under bank loans and lease until the expiry of the said period. The banks, as well as the leasing companies, are not allowed to charge bank fees or default interest on unrepaid amounts and to initiate enforcement procedures and compulsory collections, or to take other legal actions to collect its receivables from borrowers during this period.
The NBS also imposed transparency requirements, under which the banks and leasing companies will immediately until 21 March 2020 publish a notice on the offer of repayments delay to their clients on their websites. This publication gives the legal effect of notice to each individual client. If the client does not reject the offer within 10 days, it will be considered the offer is accepted. Moratorium starts to apply 10 days after the publication of the bank/leasing company’s offer. Payments that fall due before the date when moratorium starts can be collected, unless the client required to apply moratorium from the date of publication of the offer.
On the other hand, nothing prevents debtors who are still willing to make repayments to do so. Debtors that opt to continue to make payments can apply the moratorium subsequently during the state of emergency.
Banks are obliged to adjust their internal acts with the said Decisions before or on 23 March 2020.
The Decisions inevitably open a number of questions that are going to unveil in the forthcoming period and need to be considered carefully. One of the aspects is when the deferred payments will mature after the expiry of the standstill period and how to apply interest. The NBS already commented that the moratorium means prolongation of maturity for three months. Regular interest rates should be added and proportionally applied to the principal during the remaining repayment period. The NBS also noted that the banks and lease providers should be cooperative if the client requires a different modality of repayment after the moratorium ends.
Another major aspect is the impact of the Decisions on syndicated loans when a mixed group of local and foreign lenders is involved, as well as triggering the event of default provisions in the existing agreements. This is the area where we think attention should be focused to come up with the approach that works both from a contractual and regulatory perspective.
In case of any question or a need for further information in this respect, feel free to contact our team.