Hungarian national bank recommends legal clarity and prudence in NPL transfers

The National Bank of Hungary (NBH) issued Recommendation 9/2025 (VII.31.), which provides best practices and expectations for financial institutions and non-bank lenders when transferring non-performing loan (NPL) agreements to NPL purchasers. The Recommendation, aimed at enhancing legal clarity and promoting prudent conduct in NPL transfers, is to be applied from 1 August 2025. Although the NBH’s recommendations are regulatory tools without binding force, the Hungarian banking industry nevertheless treats them as mandatory in practice.

For more information on Act XII of 2025 on Servicers of Non-Performing Loan Agreements and the Purchasers of Non-Performing Loan Agreements (NPL Act), see this previous Law-Now article here.

In the Recommendation, the NBH underscores several core expectations. Financial institutions are expected to maintain a clear segregation between NPLs falling within the scope of the NPL Act and those outside its scope, such as loans originally acquired from non-EEA lenders. When transferring NPLs subject to the NPL Act institutions must comply with statutory requirements and follow the principles of the Recommendation, particularly in selecting a reliable NPL purchaser. The NBH recommends avoiding bundling NPLs inside and outside the scope of the NPL Act in the same transfer agreement.

Financial institutions are also expected to formalise a comprehensive internal framework governing NPL transfers to purchasers. According to the Recommendation, this framework should address:

• Core principles for transferring NPL agreements to purchasers.
• Transfer processes for individual and portfolio (package) sales — including procedural steps, responsible persons, deadlines, and the roles of all relevant internal departments (e.g. compliance, fraud management, legal, accounting, AML).
• Mandatory content and format of proposals for NPL transfers, such as quantitative comparisons of recovery prospects and the amount of impairment.
• Disclosure obligations that ensure prospective purchasers receive all necessary information to assess the value, enforceability, and collateral of NPL agreements.
• Criteria for defining eligible purchasers, both for individual transfers and, in package sales, for each stage of the process.
• Purchaser selection criteria, including screening and control requirements, exclusion factors, conflict-of-interest management, and rules for periodic review of the criteria.
• Purchaser due diligence process, including responsibilities, in line with conflict-of-interest requirements set out in NBH Recommendation 12/2022 on internal defence lines and governance.
• Key contractual terms to be included in the transfer agreement with purchasers.
• Borrower information requirements, specifying content, method, and deadlines for notices under the NPL Act.

The NBH expects financial institutions to apply measures that ensure prospective purchasers comply with source-of-funds verification requirements in line with NBH Recommendation 5/2025 and verify the legitimacy of the purchaser’s funds used to acquire the NPLs.

The Recommendation also expects NPL transfer agreements to clearly define the purchaser’s obligations, including:

• Compliance with all applicable legal requirements, including those relating to loan servicing mandates, contract enforcement, consumer protection, borrower rights, loan origination, personal data protection, banking and business secrecy and criminal law.
• Provision of information and data necessary for the financial institution to fulfil its reporting obligations to the NBH.
• The purchaser’s reporting obligations to the NBH.
• Details of the transfer of data to the Central Credit Information System (KHR) by the loan servicer.

In selecting NPL purchasers, financial institutions are expected to assess potential conflicts of interest between borrowers, co-borrowers, guarantors or security providers and the purchaser. This review should cover situations such as:

• Personal or professional connections between the purchaser and borrowers, co-borrowers, guarantors, or related individuals or entities.
• Purchasers where senior executives of the financial institution or employees involved in NPL management hold significant influence or ownership.
• Purchasers who participated in enforcing the relevant NPL within three years prior to the transfer agreement.
• Past employment or contractual relationships with the financial institution within the last five years.
• Political influence or connections.

There should be no NPL transfers to any purchaser where such conflicts are identified.

Finally, the NBH considers it good practice for an NPL servicer acting as a purchaser to comply with the Recommendation’s expectations when transferring other NPL agreements acquired from the financial institution.

For more information on the Recommendation or guidance on ensuring compliance, contact your CMS client partner or these CMS experts.

The article was co-authored by Márton Lázár.