Loans from Non-EU IFIs No Longer Subject to Minimum Tenor Requirements in Serbia

Loans from Non-EU IFIs No Longer Subject to Minimum Tenor Requirements in Serbia

Author: Dragoljub Sretenovic, BDK Advokati

The National Bank of Serbia (“NBS”) has updated its regulation of cross-border loans and guarantees involving Serbian borrowers and security providers (“Update”).

The Update allows Serbian borrowers to agree to partially or fully repay at any time loans taken from international financial institutions (“IFIs”) of which Serbia is a member or with which Serbia has an international treaty regulating IFI’s activities in Serbia. Before the Update, subject to a narrow exception, Serbian borrowers were not allowed to take short-term loans from foreign non-EU lenders, including non-EU IFIs, or make principal repayments under long-terms loans to such lenders before a statutory grace period expires.

The Update further allows Serbian companies to guarantee for, or secure with their assets, the obligations of EU borrowers owed to non-EU based IFIs. Before the Update, providing guarantees or other security for the debt of an EU-based borrower owed to a non-EU based lender was allowed only if the EU borrower was a subsidiary of the Serbian guarantor/security provider (a situation very rare in practice).

Despite the continuing relaxation of foreign exchange regulations, the Serbian companies still have difficulties participating in the cross-border financing transactions. Providing guarantees or other security for the debt of a foreign non-EU borrower remains prohibited. Guaranteeing or otherwise securing debt owed by any foreign borrower, including EU one, to a foreign non-EU commercial lender is also prohibited. The issue of whether a Serbian company is free to provide guarantee or other security for the debt of an EU-based borrower owed to a syndicate of lenders, some of which are from EU or are qualified IFIs and some of which are not from any of those categories, remains unclear. When permitted, cross-border guarantees and security are subject to extensive reporting requirements to the NBS. Furthermore, Serbian guarantor/security provider is required to obtain an assurance that it will be reimbursed by the non-resident borrower in case the guarantee or other security is enforced. Finally, NBS may suspend the ability of a Serbian resident to guarantee or secure the loan obligations of a non-resident even when such credit support is generally permitted, for reasons of “public interest and/or financial stability”. Even though this threshold for suspension is set high, it is not a rare case that NBS informally suspends the ability of Serbian companies to provide cross-border guarantees and other security, by refusing to certify mandatory reports submitted to it by the guarantor/security provider. These issues will hopefully be addressed in the not-so-distant future.

Author: Dragoljub Sretenovic, BDK Advokati

The National Bank of Serbia (“NBS”) has updated its regulation of cross-border loans and guarantees involving Serbian borrowers and security providers (“Update”).

The Update allows Serbian borrowers to agree to partially or fully repay at any time loans taken from international financial institutions (“IFIs”) of which Serbia is a member or with which Serbia has an international treaty regulating IFI’s activities in Serbia. Before the Update, subject to a narrow exception, Serbian borrowers were not allowed to take short-term loans from foreign non-EU lenders, including non-EU IFIs, or make principal repayments under long-terms loans to such lenders before a statutory grace period expires.

The Update further allows Serbian companies to guarantee for, or secure with their assets, the obligations of EU borrowers owed to non-EU based IFIs. Before the Update, providing guarantees or other security for the debt of an EU-based borrower owed to a non-EU based lender was allowed only if the EU borrower was a subsidiary of the Serbian guarantor/security provider (a situation very rare in practice).

Despite the continuing relaxation of foreign exchange regulations, the Serbian companies still have difficulties participating in the cross-border financing transactions. Providing guarantees or other security for the debt of a foreign non-EU borrower remains prohibited. Guaranteeing or otherwise securing debt owed by any foreign borrower, including EU one, to a foreign non-EU commercial lender is also prohibited. The issue of whether a Serbian company is free to provide guarantee or other security for the debt of an EU-based borrower owed to a syndicate of lenders, some of which are from EU or are qualified IFIs and some of which are not from any of those categories, remains unclear. When permitted, cross-border guarantees and security are subject to extensive reporting requirements to the NBS. Furthermore, Serbian guarantor/security provider is required to obtain an assurance that it will be reimbursed by the non-resident borrower in case the guarantee or other security is enforced. Finally, NBS may suspend the ability of a Serbian resident to guarantee or secure the loan obligations of a non-resident even when such credit support is generally permitted, for reasons of “public interest and/or financial stability”. Even though this threshold for suspension is set high, it is not a rare case that NBS informally suspends the ability of Serbian companies to provide cross-border guarantees and other security, by refusing to certify mandatory reports submitted to it by the guarantor/security provider. These issues will hopefully be addressed in the not-so-distant future.