What are we waiting for?
The law on solving non-perfoming loans of physical entities has resulted in major problems in the financial system of the Republic of Serbia. Banks, debtors, debt collection companies agencies have encountered major obstacles in collecting NPL receivables. Change is necessary.
Disputable clauses of the Law on Protection of Users of Financial Services
Prohibition of reassignemnt of the receivables to financial institutions, except banks
Contradictory protection of users of financial services
Irrespective of your field of interest and business activity, whether it is construction or manufacturing, trade or finances, in the Serbian business community we all know each other. I am no exception. For almost a decade, I have been Managing Director of EOS Matrix and, together with the company I represent, I am a part of the financial sector. If our paths have not crossed before, EOS Matrix is a part of the Hamburg-based EOS Group, specializing in the debt purchase and collection of receivables. We have been operating in Serbia for 15 years, and looking at our revenues, profit, and the number of employees, we rightfully consider ourselves a market leader. And precisely for that reason, we are taking the role of spokesperson for the entire industry.
For the first time in 2013, I ventured to give a public comment on the Law on the protection of consumers of financial services, in the part that directly governs the debt purchases. From then on, wherever we would meet, we would open the same debate. The NPL forum, AmCham meetings, Nationaln Bank of Serbia (NBS) strategy development working groups, and numerous roundtables provided a platform for the dialogue about a still unsolved problem – allowing the receivables from physical entities to be reassigned to financial institutions other than banks.
In 2015, the Strategy for the resolution of non-performing loans pass the legislation, stating that the main priority is making conditions for the development of the relevant market. Full of optimism, we listened to the representatives of NBS, who pointed out that there were numerous problems to consider and resolve before the liberalization itself could take place. A lack of instruments for the protection of physical entities, licensing and supervision of potential buyers, were just some of the problems noted in the Strategy, and the prior goal was to eliminate all of these obstacles.
In the period from 2016 to 2019, at the NPL forums and similar events, the main barrier to liberalization, at least according to the representatives of the National Bank of Serbia, was the position that before regulating the purchase of receivables, the legal framework for insolvency (bankruptcy) of physical entities must be regulated, and that the work on that process was underway. That position was abandoned in 2019.
The program for the resolution of non-performing loans for the period 2018-2020 is a strategic document adopted by the Government of the Republic of Serbia, envisaging that the working group should, among other things, additionally consider the issues relating to the introduction of the legal framework for insolvency of entrepreneurs and individuals in the future. It is underlined that the National Bank of Serbia supports a cautious approach in consideration of this option, so it is most likely that they also backe down on this approach.
Do we know what we are still waiting for?
Let me remind you, for nine years this law has been causing serious damage to the financial system of the Republic of Serbia, without bringing any benefits for the consumers of financial services. Contrary to the practice of the European countries, the law does not allow the reassignment of receivables, which is not in accordance with comparative law, or the regulations governing contractual relations. Instead of regulating the reassignment of bank receivables in accordance with the very purpose of the law – which is the protection of financial services’ consumers – it not only fails to protect them, but directly prohibits reassignment and consequently harms the consumers, as well as the banking system of Serbia. The banks are forced to litigate, with heavy additional costs, in order to collect their claims, so they could collect the disputable and doubtful receivables which at that point are no longer a part of the bank’s balance sheet. The debtors are completely ignored in this process. They are not given a fair chance to settle their debts, considering that in most situations they are the ones who bear the additional costs of court proceedings. The amendment that was called for does not undermine the purpose of the law, as after the reassignment of receivables, the new creditor can in no way cause the debtor to be in a less favorable position than if the receivables had not been reassigned, nor can the debtor be exposed to additional costs.
The debtors are completely ignored in this process. They are not given a fair chance to settle their debts, considering that in most situations they are the ones who bear the additional costs of court proceedings.
So, what are we waiting for?
In the coming period, EOS Matrix will incite changes of the law in question, through participation in round tables on the topic of market liberalization, as well as an initiative to form an association of companies engaged in the collection of receivables.
*Source: Magazine Business and Finance, Top Finance 2019/20, edition June 2020