NBS: Preconditions created for resolution of non-performing loans

By amendments to the Decision on Risk Management by Banks and the Decision оn the Classification of Bank Balance Sheet Assets and Off-Balance Sheet Items adopted by the Executive Board in its meeting on 27 December 2012, the National Bank of Serbia has created preconditions for a systemic approach to resolving non-performing loans (NPLs) accumulated in the Serbian banking sector, NBS said in a release.

Bearing in mind that a high share of NPLs stems from corporate loan arrears, new regulatory solutions envisage cessation of bank claims on legal entities in compliance with international practice and standards, without jeopardising the stability of the financial system. As a result, a considerable amount of funds previously allocated to loan loss provisions will be freed up, which will spur lending to feasible projects and healthy clients and have a positive bearing on the real sector. In its supervisory role, the National Bank of Serbia will carefully monitor banks’ activities in this process.

In addition, the above amendments are also an incentive for banks to invest additional efforts in employment of existing legal mechanisms – the Law on Consensual Financial Restructuring of Companies and Bankruptcy Law – in the restructuring of their claims on companies which, despite current strains, have a chance to recover.

The adopted amendments will allow banks to regulate through their internal by-laws the assessment of creditworthiness of natural persons and the assignment of maximum debt-to-income ratios to individual clients. Rather than setting a uniform debt-to-income ratio, the NBS now gives banks more flexibility in credit risk assessment, enabling them to acknowledge the differences among clients in terms of their overall standing, level of regular income, level and structure of regular financial obligations, credit history, and other factors affecting their creditworthiness. This will not only increase the active supervisory role of the NBS, but also the responsibility of banks for their business decisions and risk management.

Amendments to the above decisions will enter into force on 31 December 2012.