1. Background of the adoption of the Directive (EU) 2021/2167[1]
Since the last major financial crisis, the European Union (EU) has made significant efforts to reduce the share of non-performing loans (NPLs, i.e. loans that are not repaid as contractually agreed) in the EU banking system. The accumulation of NPLs can pose a major challenge to the stability and efficiency of the EU banking and financial system and, indirectly, to the EU economy as a whole, by adversely affecting the profitability of banks and their ability to issue new loans.
One of the actions foreseen in action plans to tackle the problem of bad loans in the EU was the development of secondary markets for bad loans. This should allow banks to sell bad loans to third parties in competitive and transparent markets and thus remove them from their balance sheets, which would prevent an excessive accumulation of such loans in uncertain times or in the event of any sudden economic shocks in the future.[2]
With this purpose, Directive (EU) 2021/2167 was adopted, which aims to remove barriers and set safeguards for the transfer of NPLs from credit institutions to credit purchasers, while at the same time safeguarding the rights of borrowers.
2. Framework and main concepts of the ZKSNKB[3]
ZKSNKB transposes the mentioned Directive into Slovenian law and, in accordance with it, establishes a legal basis for the effective resolution of NPLs by setting up mechanisms for their sale and servicing.
The ZKSNKB regulates four areas, namely:
- the rights and obligations of credit purchasers in relation to NPLs,
- the conditions for performing credit servicing activities and the obligations to be fulfilled by a credit servicer,
- obligations of credit institutions[4] in relation to the sale of NPLs and
- the measures and powers of the Bank of Slovenia as the competent authority for the supervision of business of the credit purchasers and credit servicers and certain other entities.
Some of the key features of the new regime are outlined below.
A. The concept of an NPL
The new legislative framework concerns transactions and services directly related to NPLs. An NPL within the meaning of the ZKSNKB is a credit agreement or a claim under a credit agreement that is classified as a non-performing exposure in accordance with Article 47a of the EU Regulation No 575/2013[5] (for example, where the borrower is more than 90 days past due on the payment of agreed instalments or interest or where it appears that there is a low probability that the credit obligation will be settled). Simply put, it is a loan that is in arrears or that the borrower is unlikely to repay.
It should be noted that the concept of NPLs covers both NPLs granted to legal persons and private entrepreneurs as well as NPLs granted to consumers. However, the ZKSNKB applies in any event only to NPLs granted by credit institutions established in the EU and assigned after its entry into force.
B. Rights and obligations of purchasers of NPLs
Under the ZKSNKB, a potential credit purchaser[6] has the right to receive certain information from the credit institution from which it intends to purchase a NPL, whereby the potential credit purchaser must ensure the protection of all information and the confidentiality of the business information and personal data it receives.
The credit purchaser does not need a special licence to purchase NPLs. However, in relation to the borrower, it is obliged to comply not only with the provisions of the ZKSNKB but also with the rules governing the enforcement of contracts, consumer protection, contractual relations, the rights of borrowers, confidential business information and the general rules on civil and criminal liability, with the aim of maintaining the level of protection of borrowers’ rights also after the assignment of rights or contracts. In this respect, it is important to underline that the ZKSNKB does not exclude the application of Article 122 OZ[7] , which governs the general conditions for the assignment of a (credit) contract.
In some cases, in particular when it comes to the purchase of NPLs granted to consumers, it is mandatory for the credit purchaser to appoint a credit servicer or other appropriate entity to carry out the servicing of the NPLs and, in some cases, to have a representative in Slovenia.
C. Rights and obligations of credit servicers
A credit servicer within the meaning of the ZKSNKB is a legal person which, on behalf of a credit purchaser, manages and enforces, in the course of its business, the rights and obligations related to creditor’s rights under non-performing credit agreement, carrying out at least one of the credit servicing activities[8].
A credit servicer may only commence credit servicing activities after obtaining a licence from the Bank of Slovenia, which verifies that it fulfils all the conditions prescribed by law, whereby the licence is issued for a period of five years, with the possibility of multiple renewals for a further five years.[9] Once the licence has been obtained, a credit servicer will be able to carry out credit servicing activities in other EU Member States, subject to meeting additional conditions and providing the Bank of Slovenia with the required information.
A credit servicer carries out credit servicing activities on the basis of a credit servicing agreement concluded with the credit purchaser, the contents of which must comply with the relevant provisions of the ZKSNKB.
Taking into account the above-mentioned obligations introduced by the new regime, it is important to note that the ZKSNKB does not apply to (inter alia) credit servicing activities carried out by credit institutions established in the EU, investment fund managers authorised or registered in the Republic of Slovenia and other legal persons authorised to provide consumer credit services and to provide real estate finance leasing services, as these persons are already regulated and supervised. They are, however, subject to the individual provisions of the ZKSNKB, which regulate in particular their obligations towards borrowers (see subsection D below), their obligations to report to the Bank of Slovenia, and they are also subject to the supervisory mechanism and the relevant offence provisions. The ZKSNKB also does not apply to credit servicing activities carried out by notaries, executors and lawyers domiciled or established in the Republic of Slovenia when they carry out credit servicing activities within the scope of their profession, and in other cases expressly regulated by the law.
D. Protection of borrowers
The ZKSNKB expressly provides that, with respect to credit agreements to which it applies, it shall not affect the principles of contract or civil law relating to credit agreements or the protection of consumers or other borrowers under existing applicable law. However, certain provisions of the ZKSNKB are intended to further protect borrowers. For example, the general provision of Article 32 ZKSNKB provides that the credit purchaser and the servicer must, in relation to the borrower:
- act in good faith, fairly and professionally;
- provide information to a borrower that is not misleading, confusing or false;
- respect and protect confidential business information and ensure the protection of a borrower’s personal data;
- communicate with a borrower in a way that does not constitute harassment, coercion or undue influence.
Article 33 of the ZKSNKB also details the obligations of the credit purchaser or the credit servicer to communicate information to the borrower prior to the first debt collection or at the request of the borrower. In addition, credit servicers are required to establish and maintain an effective and transparent procedure for handling borrower complaints.
In order to align the new regime with the existing one, in particular with regard to borrower protection, the ZKSNKB also makes important amendments to the Consumer Credit Act[10] , inter alia, it:
- sets out the information that the creditor must communicate to the borrower before changing the terms of the credit agreement,
- provides that creditors must have in place appropriate policies and procedures to seek reasonable restructuring prior to the commencement of enforcement proceedings, where this is appropriate from the creditor’s point of view,
- amends the provisions relating to the assignment of claims in order to align them with the ZKSNKB Act.
E. Notification and reporting obligations to the Bank of Slovenia
The ZKSNKB introduces obligations regarding notifying and reporting to the Bank of Slovenia for both credit purchasers and credit institutions. For example, credit purchasers must inform the Bank of Slovenia of the appointment of credit servicers and certain other entities and periodically report to the Bank of Slovenia on assignments of NPLs to new purchasers. Credit institutions operating in the territory of the Republic of Slovenia are also required to report periodically to the Bank of Slovenia (and to the competent authority of the host country, if relevant) on assignments of NPLs.
3. Transition period for existing credit servicers
A transitional period applies for entities already carrying out credit servicing activities on the date of entry into force of the ZKSNKB, i.e. they may continue to carry out their activities until they obtain a licence to carry out credit servicing activities in accordance with the ZKSNKB, or at the latest until 29 June 2024. However, given that the Bank of Slovenia has 90 days from receipt of a complete application for a licence to issue its decision, it is recommended that existing credit servicers prepare and submit their application as soon as possible.
[1] Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU (OJ EU L 438/1 of 8 December 2021, ” Directive (EU) 2021/2167“).
[2] In recent years. we have witnessed a positive trend towards a reduction in the share of NPLs in both the EU and Slovenian banking systems. Data for Slovenia is available on the Bank of Slovenia’s website: https://www.bsi.si/financna-stabilnost/nadzor-bancnega-sistema/nadzorniska-razkritja/podatki-o-nedonosnih-izpostavljenostih.
[3] Act governing credit purchasers and credit servicers of the non-performing loans issued by the banks (Official Gazette of the RS, No 12/24, “ZKSNKB“).
[4] Credit institution means a credit institution as defined in Article 4 of Regulation (EU) No 575/2013 and in the territory of the Republic of Slovenia means a bank and a savings bank (Article 3(3) of the ZKSNKB Act).
[5] Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176 of 27 June 2013, “EU Regulation No 575/2013“).
[6] A credit purchaser is a natural person or a legal person, other than a credit institution, that purchases creditor’s rights under a non-performing credit agreement or the non-performing credit agreement itself in accordance with the ZKSNKB (Article 3(7) of the ZKSNKB).
[7] Code of Obligations (Official Gazette of the RS, No 83/01, as amended, “OZ“).
[8] The credit servicing activities for the purpose of the ZKSNKB include one or more of the following activities:
- collecting or recovering overdue payments related to the creditor’s rights under the credit agreement or the credit agreement itself;
- renegotiating with the borrower the terms and conditions relating to the creditor’s rights under the credit agreement or the credit agreement itself, taking into account the instructions of the credit purchaser, where the credit servicer is not a credit intermediary as defined in the law governing consumer credit;
- handling complaints about the creditor’s rights under the credit agreement or about the credit agreement itself;
- informing the borrower of any changes in interest rates, charges or payments due related to the creditor’s rights under the credit agreement or to the credit agreement itself (Article 3(1) of the ZKSNKB).
[9] In accordance with the ZKSNKB, the Bank of Slovenia is required to establish and maintain a register of credit servicers.
[10] Consumer Credit Act (Official Gazette of the RS, No 77/16, as amended, “ZPotK-2“).
