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A Brief Overview of Recent Legislative Changes in Serbia Relevant for Debt Restructuring

Non-performing loans (“NPLs”) have constantly continued to accumulate since the financial crisis in 2008. According to official statistics maintained by the National Bank of Serbia (“NBS”), the percentage of NPLs increased slightly in the first quarter of 2015 compared to the fourth quarter of 2014, amounting to a total of approximately EUR 3.6 billion in the first quarter of 2015 which means that it is 1.1% more than in the fourth quarter of 2014. A majority of NPLs are seen to be coming from the corporate sector – 24% as of Q12015, the vast majority of which relate to loans granted to construction companies (50.8% out of total corporate NPLs as of Q12015). Private individuals account for 10.76% of the overall percentage of NPLs in the market statistics as of Q12015.

So far regulators have introduced various measures on different level to assist in the resolution of NPLs, however the approach was not comprehensive enough and therefore did not have a significant impact. In particular, the Law on Consensual Financial Restructuring enacted in 2011 was under-utilised and some improvement of the legal framework for out-of-court corporate debt restructuring is currently being considered.

Since 2012, when the NBS permitted receivables of NPLs granted by local banks to legal entities to be assigned for the first time to non-financial institutions, several amendments to the Decision on Risk Management of Banks (“RM Decision”) were introduced to further develop a legal framework for the disposal of NPLs. Currently, depending on whether the NPL was granted to a legal entity/entrepreneur or an individual, it could be assigned either under the RM Decision to any legal entity (if granted to legal entities and entrepreneurs), or under the Law on Protection of Consumers of Financial Services, solely to another bank (if granted to individuals). This framework, however, enables only local assignments of the loans granted by Serbian banks to Serbian residents, i.e. assignment by a Serbian bank to a locally established SPV, while cross-border assignments of such local loans are still deemed unpermitted under the Law on Foreign Exchange (“Forex Law”). The last two sets of amendments to the RM Decision adopted in 2015 dealt only with certain technical and administrative issues such as the possibility of shortening the period for delivery of documents to the NBS for NPL assignment. Generally, under the RM Decision, a bank is obliged to deliver certain documents to the NBS 30 days prior to an assignment of its loan takes place. These documents include, among others, the decision of the bank on the assignment, general information about the assignee, noting whether or not it is related to the bank, the draft assignment agreement, the dates of the intended signing and performance of the agreement, various assessments, data on the gross book value of the claims, information about the price of the claims, etc. The NBS does not issue any approval of the transaction but may raise objections or request additional documents during this 30-days period. In practice, if there is no feedback from the NBS during this period then the relevant bank is free to proceed with the assignment. Once the assignment is occured, the bank is obliged to inform the NBS within 5 days.

With the support of the IMF, the World Bank and the EBRD, the Serbian Government recently formed a working group which prepared a comprehensive national strategy to address NPLs (the “Strategy”) . The undertakings of the Republic of Serbia in this respect were set out in the Memorandum signed with the IMF in February 2015 (“IMF Memorandum”) and the strategy was adopted in August 2015.

Under the IMF Memorandum, the Serbian government undertook, among other things, to review and strengthen the capacity of banks to deal with NPLs. This should be performed by conducting diagnostic studies and issuing guidance for banks’ on how to manage NPLs. It was also agreed to identify and eliminate impediments to loan write-offs by banks and facilitate asset sales to private investors. As difficulties with collateral valuations hinder the NPL market development, Serbia agreed to introduce valuation standards and minimum criteria governing the activities of collateral appraisers. All these issues are addressed in detail in the Strategy and related Action Plans adopted by the Government and the NBS.

Certain legislative interventions that were recognised as needed in relation to NPLs and agreed with the IMF have already commenced. For instance, the deficiencies that were present in the Mortgage Law affecting the enforceability of mortgages for several years (including by subsistence of lower ranked mortgages) were finally addressed by the amendments adopted in July 2015. These amendments are aimed at improving out of court foreclosure and creating incentives for debt restructuring. Besides this, amendments to the Law on Bankruptcy and introduction of a law on personal insolvency are being considered to ease corporate and household debt resolution. In addition, the new Law on Enforcement introducing among others, termination of the enforcement procedures which were not finalised within 2 years as of initiation, is under public discussion while amendments to the Law on Consensual Financial Restructuring are also being considered.

Among other regulatory changes introduced in 2015 it should be noted that, after five years, the Law on Banks was amended. These amendments were enacted as part of a harmonisation process with applicable EU regulations in order keep pace with international regulatory trends. The legal basis of such amendments were EU Directive No. 2014/59 on establishing a framework for the recovery and resolution of credit institutions and investment firms and EU Directive No. 36/2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms. The primary aim of the amendments was to improve the legal framework for banks’ resolution/restructuring and to introduce a broader scope of supportive measures with a focus on maintaining financial stability. The Law on Banks now recognises a bail-in tool which would make shareholders bear the initial burden of a bank’s resolution. Within the scope of these new measures, the transfer of “bad assets” is possible to Serbian entities which are either banks established for this special purpose, asset management companies or the state-owned Agency for Deposits Insurance. All banks are now obliged to have and regularly updated their recovery plan, while the NBS is performing diagnostic studies and preparing for each bank restructuring plan. Some implications for transactions may arise from the amendments adjusting banking exposure limits and imposing obligations to measure and estimate the broader scope of risks (including investments in real estate). In addition, the scope of the term “related persons” has been narrowed. Other regulatory changes with respect to banks focused on extending the application of the Law on Protection of Consumers of Financial Services to entrepreneurs and family-run agricultural businesses (in addition to individuals) and also introduced certain (although limited) measures by the NBS related to Swiss currency loan contracts.

Author: Maja Jovančević Šetka
Partner, Karanović & Nikolić


  1. 1) The NBS’s Report on the Banking Sector, I quarter of 2015
  2. 2) The NBS’s Report on the Banking Sector, IV quarter of 2014
  3. 3) Decision on Risk Management by Banks (“Official Gazette of the Republic of Serbia” (Nos 45/2011, 94/2011, 119/2012, 123/2012, 23/2013 – other decision, 43/2013, 92/2013 and 33/2015), link .
  4. 4) Law on Foreign Exchange Operation (“Official Gazette of the Republic of Serbia” no. 62/2006, 31/2011, 119/2012 and 139/2014)
  5. 5) Available in English
  6. 6) Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding, 6 February 2015, Section D (Financial Sector Policies), link available at: http://www.imf.org/external/np/loi/2015/srb/020615.pdf.
  7. 7) Mortgage Law (“Official Gazette of the Republic of Serbia”, No. 115/2005); link available at: http://www.parlament.gov.rs/akti/doneti-zakoni/doneti-zakoni.1033.html, with the Law on Amendments and Supplements to Mortgage Law (“Official Gazette of the Republic of Serbia”, No. 60/2015), link available at: http://www.parlament.gov.rs/upload/archive/files/lat/pdf/zakoni/2015/824-15%20lat.pdf
  8. 8) Law on Bankruptcy (“Official Gazette of the Republic of Serbia”, No. 104/2009, 99/2011, 71/2012, 83/2014.), link available at: http://www.parlament.gov.rs/narodna-skupstina-.872.html
  9. 9) Law on Banks (“Official Gazette of the Republic of Serbia” no. 107/2005, 91/2010 and 14/2015), link available at: http://www.parlament.gov.rs/narodna-skupstina-.872.html.

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Godišnja skupština članova TMA Serbia će se održati u četvrtak 5. novembra 2015. godine u prostorijama advokastke kancelarije Karanović & Nikolić, Resavska 23 Beograd, sa početkom u 17 časova. Na skupštini će biti prezentovan godišnji izveštaj o aktivnostima TMA Serbia tokom proteklih 12 meseci, diskutovaće se o planovima za narednu godinu i predstaviće se mogučnosti za sticanje profesionalnog zvanja “European Certified Turnaround Professional”.

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