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Serbia

Law and regulation of Covid-19 loan moratoriums in Serbia

Table of contents
  1.  Description of the legislation
    1.  Is there a moratorium on loans legislation implemented in your jurisdiction?
    2. If no: Are there any ongoing discussions regarding a potential introduction of such measures?
    3.  What is the name of the relevant legislation (the “Relevant Act”)?
    4.  What is the duration of the measures (period of moratorium)?
    5. Does the legislation provide for an extension of the period of moratorium?
    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?
  2. Parties and agreements affected by the Relevant Act
    1. Is the moratorium available for both corporate and consumer loans?
    2. Who are the affected Lenders?
    3.  Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?
  3. Impact on the loan agreements
    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)?
    2.  Does the moratorium apply to principal only, or also to interest and/or fees?
    3. Will the maturity of the loan automatically be extended by the moratorium period?
    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?
    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)?
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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”)?

Decision on Temporary Measures for Preservation of the Financial System and Decision on Temporary Measures for Leasing Companies aimed at Preservation of the Financial System (both decisions published in the Official Gazette of the Republic of Serbia, No. 33/20).

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

90 days beginning on 31 March 2020 or longer, if the state of emergency due to Coronavirus is extended beyond 30 June 2020. In doubt, the banks should interpret 90 days as 3 months if that is more favourable for the client.

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

Yes, if the state of emergency is extended beyond 30 June 2020.

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?

The moratorium is mandatory unless the borrower opts out until 31 March 2020, but also the borrower may opt in at any point during the moratorium period.

2. Parties and agreements affected by the Relevant Act

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

Yes.

2.2 Who are the affected Lenders?

All banks licensed in Serbia and all leasing companies licensed in Serbia.

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

The Relevant Act does not differentiate between local and foreign lenders, but in one of its informal interpretations, the National Bank of Serbia interpreted that the moratorium is also applied on local lines of syndicated/club deals whereby local lenders would be obliged to offer the moratorium to local borrowers while foreign lenders are not obliged obviously to offer the moratorium to local borrowers.

The advice from the regulator is for local and foreign lenders in such deals to enter into an annex to the facility agreement by which the event of default would be avoided due to non-payment to local lenders because of the moratorium.

Thus, the regulator recognises the fact that syndicated deals are mainly governed under foreign law and thus the moratorium cannot be automatically applied on these loans as well, but it does not offer a solution for the situation when local and foreign lenders cannot agree whether or not non-payment toward local lenders would represent an event of default.

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)?

Moratorium is applicable for loans existing on 18 March 2020 (day when the Relevant Act entered into force) and borrowers which are not in payment arrears for longer than 90 days. It is not applicable on loan agreements entered into after such date, but banks are not prevented from extending the moratorium even on such loans.

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

It applies to both principal and interest, but it does not apply to fees, though if the borrower does not have sufficient funds for the collection of bank fees during the moratorium period, the bank may not enforce collection of such fees during the moratorium but only after the moratorium is ended.

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

Yes, the maturity of the loan will be automatically extended for as long as the moratorium is in place.

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?

No, but a bank may not enforce these during the moratorium.

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)?

The Relevant Act is silent on that but the regulator in its informal paper explained that the moratorium is applied only on payment obligations, thus the borrower is obliged to comply with all other obligations. If default occurs due to breach of these other contractual obligations, the lender may not terminate a loan during the moratorium but only after the moratorium is ended.

Authors

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Portrait ofMilica Popović
Milica Popović
Partner
Belgrade
Portrait ofKsenija Boreta
Ksenija Boreta
Senior Lawyer
Belgrade