Law and regulation of Covid-19 loan moratoriums in Bosnia & Herzegovina

1. Description of the legislation

1.1 Is there a moratorium on loans legislation implemented in your jurisdiction?

Yes.

1.2 If no: Are there any ongoing discussions regarding a potential introduction of such measures?

Not applicable.

1.3 What is the name of the relevant legislation (the “Relevant Act”)?

Secondary legislation introduced in both Federation of Bosnia and Herzegovina (“FBiH”) and Republika Srpska (“RS”), in force as of 2 April 2020.

FBiH: decisions on temporary measures to be applied by banks or microcredit organisations and leasing entities to minimise negative economic consequences of the COVID-19 pandemic (two separate decisions).

RS: decisions on temporary measures to be applied by banks or microcredit organisations to minimise negative economic consequences of the COVID-19 pandemic (two separate decisions introduced, no relevant act for leasing entities in RS as of yet).
Moratorium is envisaged as one of the special measures introduced.

1.4 What is the duration of the measures (period of moratorium)?

FBiH

  • up to 6 months maximum for banks 
  • up to 12 months for microcredit organisations and leasing entities 

RS 

  • up to 6 months by banks and microcredit organisations 
  • Prior to deciding on the appropriate measures, an interim moratorium can be confirmed to a client for a maximum period of up to 2 months starting from the revocation date of the state of emergency.

1.5 Does the legislation provide for an extension of the period of moratorium?

No. 

1.6 Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?

It is not mandatory. Borrowers can apply for an approval of special measures, or banks may initiate this process themselves during their standard monitoring procedures. Banks are under a duty to introduce, within a deadline of 15 days from entry into force of the Relevant Act, their own programmes on special measures specifying the types of measures adopted, eligibility criteria, tracking, approval and reporting procedures, etc. If a negative effect on a client is established, financial institutions are obliged to grant special temporary measures introduced under the secondary legislation, including moratoriums.

2. Parties and agreements affected by the Relevant Act

2.1 Is the moratorium available for both corporate and consumer loans?

It is applicable both to corporate and consumer loans and to borrowers whose credit rating has worsened due to the COVID-19 outbreak, i.e. whose ability to repay and meet other obligations towards the lender has been reduced. 

It is applicable to any corporate and retail obligations under loan or guarantee transactions, financial leasing and factoring agreements, leasing and microcredit agreements.

In case of consumer loans, banks may exceptionally activate moratoriums without entirely implementing the pre-approval offer and acceptance procedure due to technical or other obstacles, provided the borrower is subsequently adequately informed and such actions are adequately documented.

2.2 Who are the affected Lenders?

FBiH:

  • banks and microcredit organisations
  • leasing companies

RS:

  • banks and microcredit organisations only so far.

In both cases, lenders must be located in the relevant territory and licensed by the competent FBiH or RS regulator. Foreign lenders are not affected.

2.3 Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?

As the legislation expressly states the moratorium applies to banks/other lenders who are: 

  • seated in FBiH or RS respectively, and 
  • have been licensed by the domestic regulators,
  • any applicability to a foreign law-governed loan would depend on the underlying agreement and the lender involved.  

3. Impact on the loan agreements

3.1 Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?

Unspecified under the Relevant Act, applicable to currently valid loan, microcredit or leasing agreements.

3.2 Does the moratorium apply to principal only, or also to interest and/or fees?

Principal due, principal not due, calculated and unpaid interest and any fees.

3.3 Will the maturity of the loan automatically be extended by the moratorium period?

Not automatically, to be determined in each specific case.

3.4 Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?

Yes.

3.5 Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?

Not specified under the newly introduced legislation, therefore general rules apply.

Portrait ofAndrea Zubović-Devedžić
Andrea Zubović-Devedžić
Managing Partner
Sarajevo
Portrait ofSanja Voloder
Sanja Voloder
Counsel
Sarajevo