Romania: The Sale Of Non-Performing Loans After GEO 52/2016

Last Updated: 6 October 2017
Article by Alexandra Manciulea and Alexandra Lupu

Starting with 2014, after the entry into force of new prudential rules imposed by the Basel III international standards, as well as by Directive 2013/36/EU and Regulation no. 575/2013, the transactions of sale of non-performing loans have gained even more the attention of investors. Romania ranked first in Central and Eastern Europe in respect of sales of non-performing loans with transactions valued at EUR 3.5 billion in 2015 and 2016. Considering that there still are important Romanian banks with a rate of non-performing loans exceeding 10%, the market is expecting that the transactions of sale of non-performing loan portfolios will continue in the next period.

Recent legislative amendments brought by the entry into force of the Government Emergency Ordinance no. 52/2016 regarding loan agreements granted to consumers for immovable property and on amending and supplementing the Government Emergency Ordinance no. 50/2010 on consumer loan agreements (GEO 52/2016) could influence the structure of these transactions in the future.

Although the purpose of GEO 52/2016 was, among others, to ensure discipline of the debt recovery activity in the context of the boom of the sales of non-performing loans, certain changes brought by it triggered uncertainties on the market. Therefore, following these legislative amendments, the transfer of non-performing loans will be treated differently depending on the type of debtor (loans offer to corporate clients or consumers), on the purpose of the loan (whether they were granted in relation to immovable property or not), the moment of execution of the agreement (loans concluded before or after the entry into force of GEO 52/2016).

1. Sale of non-performing corporate loans versus sale of non-performing consumer loans

1.1. Corporate loans

Although GEO 52/2016 aimed to regulate only consumer loans, it also brought amendments to Law no. 93/2009 regarding non-banking financial institutions (Law 93/2009) with consequences in respect of the assignment of corporate loan portfolios.

According to Law 93/2009, lending activities on a professional basis can be carried out only regulated entities (such as credit institutions and non-banking financial institutions). Before the entry into force of GEO 52/2016, Law 93/2009 also provided that only such regulated entities can purchase loan portfolios and the main exception to this rule was that loan portfolios classified as loss, according to the provisions regarding the classification of loans, could also be transferred to unregulated entities. GEO 52/2016 repealed these provisions regarding the acquisition of loan portfolios, while regulating only the transfer of consumer loan portfolios.

This amendment raised questions in relation to the possibility for unregulated entities to continue to purchase loan portfolios which were classified as loss (commonly known as non-performing loans). Given the rule that lending activities can only be undertaken on a professional basis by regulated entities, the question being raised is whether purchasing portfolios of loans classified as loss constitutes professional lending or not. In this respect, the National Bank of Romania (NBR) is the only competent authority to decide if a certain activity could be qualified as professional lending.

In January 2017, the NBR issued a press release offering its interpretation in relation to this legislative amendment. According to the NBR's opinion, despite the provisions regarding the transfer of loan portfolios having been repealed, the acquisition of loans classified as loss according to the provisions regarding the classification of loans, as well as carrying out operations in view of recovering the amounts owed, do not qualify as professional lending and, therefore, can be undertaken by entities other than professional lenders.

This intervention of the NBR offers some comfort to unregulated entities by establishing a general interpretation regarding the acquisition of portfolios of loans classified as loss. However, the NBR's press release seems to suggest that the activity carried out by the purchaser in relation to the purchased loans must still be analysed on a case by case basis in order to determine if it presents the characteristics of professional lending.

In light of the NBR's interpretation, we consider that the acceleration of the loan or the initiation of enforcement procedures after the purchase of the loans would fall outside the scope of the professional lending activity. The same interpretation would not apply for continuing to collect the principal, interest or fees and commissions after the purchase, at their due dates, in accordance with the initial contractual terms of the loan, with respect to which it could be argued that they represent professional lending activities that could be carried out only by regulated entities.

1.2. Consumer loans

With respect to consumer loans, GEO 52/2016 establishes the rule that only credit institutions or non-banking financial institutions authorized to offer that specific type of loan, or alternatively entities authorized to issue securitized debt instruments in accordance with Law no. 31/2006 regarding debt securitization, will be able to purchase the consumer loans.

As an exception, receivables deriving from non-performing loans, which have been accelerated by the creditor or in relation to which the creditor has initiated enforcement proceedings, can be purchased by debt recovery entities registered with the National Authority for Consumer Protection, under the condition they have their registered headquarters, a branch or a representative in Romania.

2. The sale of consumer loans contracted in relation to immovable property versus those contracted for other purposes

GEO 52/2016 applies to consumer loan agreements regarding the sale, respectively, purchase of immovable property, loan agreements secured by an immovable mortgage or such agreements involving a right related to an immovable asset (Consumer Loan Agreements for Immovable Property). However, GEO 52/2016 also amended GEO 50/2010 on consumer loan agreements (GEO 50/2010), narrowing its scope of application only to consumer loan agreements other than the Consumer Loan Agreements for Immovable Property (Classic Consumer Loan Agreements).

Although the legal regime applicable to the transfer of loans granted under the two types of contracts should have been the same, there is a notable difference. In particular, GEO 52/2016 defines non-performing loans only in relation to Consumer Loan Agreements for Immovable Property as those for which there is a delay in payment of at least 90 days but does not provide a similar definition for non-performing loans in relation to Classic Consumer Loan Agreements, regulated under GEO 50/2010. Consequently, when purchasing receivables deriving from Classic Consumer Loan Agreements, we raise the question how those loans will be classified as non- performing. Considering that the scope of GEO 52/2016 is narrower than that of GEO 50/2010, we could not extend the definition provided for non-performing loans deriving from Consumer Loan Agreements for Immovable Property to those deriving from Classic Consumer Loan Agreements.

One approach could be to classify loans deriving from Classic Consumer Loan Agreements as non-performing by using the notion of loans classified as loss which, according to and within the limits of the NBR's interpretation, could be transferred to unregulated entities. As opposed to the qualification of non-performing loans according to GEO 52/2016 (which uses as a criterion only the number of days of delay in payment), for classifying a loan as the financial performance of the debtors is also used as a criterion (according to which a loan may be classified as loss even in case of fewer days of delay in payment), as well as the initiation of judicial procedures against the debtor (enforcement or bankruptcy). Furthermore, when classifying loans as loss, all loans granted to one debtor are classified as loss if at least one of them fulfils the relevant criteria, even if the rest of them may not meet the requirements. This is known as declassification by contamination (in Romanian, declasare prin contaminare).

3. The sale of non-performing loans depending on the date of the loan agreement

The new provisions regarding the Consumer Loan Agreements for Immovable Property, including those regarding their transfer, do not apply to agreements which were already in force at the moment when GEO 52/2016 was adopted (i.e. 30 September 2016). This means that, in principle, the general regime applicable to the assignment of loans will also apply to the transfer of such loans, meaning the NBR's interpretation of Law 93/2009 presented above. Therefore, these loans can be purchased by any regulated entity and also by any unregulated entity, not only by debt recovery entities.

In relation to Classic Consumer Loan Agreements, however, the applicability of the new rules is not limited to agreements concluded after the entry into force of the legislative amendments. Therefore, the transfer of such loans, even when such were granted before the entry into force of the new provisions, is possible only by complying with the applicable rules in force at the date of the transfer, meaning only towards regulated entities or unregulated debt recovery entities.

Therefore, depending on the criteria presented above, the following aspects could vary in the context of a transaction of sale of a non-performing loan portfolio: the entity which can purchase those loans, the conditions under which the acquisition can be performed and even the definition of the non-performing loan. These aspects will lead to additional efforts for structuring the transaction if it envisages the acquisition of a complex loan portfolio.

Nevertheless, despite these legislative amendments, the Romanian market continues to have potential for further transactions of sale of non-performing loans. Considering the recommendation that the NBR made to banks to diminish their rate of non-performing loans, we expect to witness more transactions of sale of non-performing loans in the following period.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.