The management and purchase of non-performing loans will be subject to a new legal framework, which will take effect on June 1, 2024. The primary objective of this regulation is to address the issue of non-performing loans and to support the development of secondary markets for non-performing loans in the European Union.
The recently adopted Act No. 106/2024 Coll. on Credit Servicers and Credit Purchasers and on Amendments to Certain Acts (hereinafter referred to as the “Act on Credit Servicers and Credit Purchasers”) represents a significant step forward in financial regulation in Slovakia. The Act on Credit Servicers and Credit Purchasers reflects Directive (EU) 2021/2167 of the European Parliament and of the Council (EU) 2021/2167 of November 24, 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU, which establishes common rules for the servicing and purchase of non-performing loans throughout the European Union (EU).
The management and purchase of non-performing loans represent a specific area of the financial market that involves the management and recovery of loans that are not being repaid in accordance with the agreed terms. Non-performing loans can pose a risk to financial institutions, but at the same time offer investment opportunities for companies specializing in their management and recovery.
The primary objective of the approved Act on Loan Servicers and Loan Purchasers is to enable credit institutions to effectively address the excessive accumulation of non-performing loans. By outsourcing the management of non-performing loans to specialized managers or selling them to purchasers who are willing to assume the risks and possess the expertise to manage them, banks will be better able to address this issue.
In the past, rules were already introduced within the EU requiring credit institutions to set aside sufficient financial resources to address situations involving non-performing loans, with the aim of preventing their excessive accumulation at the earliest possible stage. However, the approved Act on Loan Servicers and Loan Purchasers is expected to further strengthen the prevention of excessive accumulation of loans, specifically through the possibility of selling them to other entities in secondary markets. These markets should be efficient, competitive, and transparent to enable the transfer of risk associated with non-performing loans to other entities. Such an approach would help reduce pressure on credit institutions and enable the effective resolution of non-performing loan issues.
The new Act on Loan Servicers and Loan Purchasers sets forth specific conditions for granting a license to loan servicers, which entities applying for a license must meet. It also defines the grounds for revoking a license, the requirements for the register of loan servicers, and their obligations toward debtors. The Act on Loan Servicers and Loan Purchasers also contains requirements for the performance of loan servicers, as well as provisions governing the legal relationships between the servicer and the loan purchaser, the outsourcing of activities by servicers, the legal framework for cross-border loan servicing activities, the legal status of loan purchasers, and the supervision of all relevant entities.
The management and purchase of non-performing loans constitute a specific area of financial services in which companies specialize in the acquisition and management of loans that debtors are unable to repay under the originally agreed terms. This process involves not only administrative management but also active debt collection and negotiations with debtors.
The provision of non-performing loan management and purchase services is regulated by relevant legislative and regulatory frameworks, which include the requirement to obtain a license from the National Bank of Slovakia. The conditions for obtaining a license and the subsequent conduct of business by a licensed loan servicer are strictly regulated by the Act on Loan Servicers and Loan Purchasers.
To obtain a license for a loan servicer, the National Bank of Slovakia recommends using the services of law firms that have experience representing clients before the National Bank of Slovakia, which will provide you with the necessary legal advice and effectively assist with the preparation of all required documents and forms for submitting the application for a credit administrator license, through to representation before the National Bank of Slovakia during the actual licensing proceedings. During the licensing proceedings, the law firm acts as the applicant’s legal representative, handles communication with the relevant regulatory authorities, and addresses all legal issues that may arise during this process.
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