NPL deals were in recent years some of the most interesting and challenging transactions in Romania. After the NPL boom in 2014 and early 2015, the Romanian market experienced another active period at the end of 2015 and in the first semester of 2016. During this period, two of the largest deals were completed. These were the “Tokyo deal” (where BCR sold to APS, Deutsche Bank and IFC an NPL portfolio with a nominal value of approx. EUR 1.2 billion) and the “URSA deal” (where Bancpost, ERB Retail Services IFN and a Dutch vehicle of Eurobank sold three non-performing retail loan portfolios with a nominal value of approx. EUR 597 million to a consortium formed of IFC and Kruk for a total purchase price of approx. EUR 46 million).
The main investors in NPL portfolios are investment funds and debt collection companies. In fact, following the largest deals of 2015 and 2016, debt collection companies such as Kruk, Kredyt Inkaso (Poland), APS and EOS (Germany) became the most active players on the Romanian NPL market. This trend could change however due to the recent developments in the consumer protection legislation which may affect the possibility of debt collection companies to participate in this type of deals.
More specifically, on 30 September 2016, the Government Emergency Ordinance no. 52/14 September 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”) entered in force.
GEO 52/2016 sets forth new rules with respect to the entry into, performance, transfer and enforcement of 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. Some of the changes brought by the GEO 52/2016 reach further than the consumer loans area.
Prior to the entry into force of GEO 52/2016, the applicable legislation (i.e., Law 93/2009 regarding non-bank financial institutions) provided that, as a rule, lending activities on a professional basis may be carried out only by regulated entities (such as credit institutions and non-banking financial institutions) and only such entities may acquire loan portfolios. The main exception to this rule was that loan portfolios qualified as losses (NPLs) could be transferred to other non-regulated entities. GEO 52/2016 repealed the article stating both the rule and the exception above on the transfer of loan portfolios. Consequently, at the moment it is debatable whether non-regulated entities may still acquire loan portfolios qualified as losses.
GEO 52/2016 offers an answer only in respect of consumer loans. Consumer loan portfolios may be transferred only to credit institutions or non-bank financial institutions authorised to grant this type of loans in Romania, or alternatively, to entities authorised to issue securitized debt instruments regulated by Law no. 31/2006 regarding debt securitization. By way of exception, receivables deriving from non-performing loans (i.e., loans due for at least 90 days) in relation to which the creditor declared the acceleration of the loan or initiated the enforcement proceedings against the debtor can be acquired by debt collection entities having their registered seat, branch or a representative office in Romania.
The legal framework remains unclear in what concerns the possibility to transfer corporate NPLs to non-regulated entities. In light of the rule that lending activities may be carried-out on a professional basis only by regulated entities, determining whether a purchaser would be regarded as carrying-out a lending activity on a professional basis as a result of the NPL acquisition becomes essential. The National Bank of Romania is the only authority competent to decide whether an activity can be qualified as professional lending. In the absence of an official opinion from the National Bank of Romania, it would be reasonable to consider that the purchaser cannot be regarded as carrying out a professional lending activity simply as a result of the acquisition of the corporate NPLs. The rights gained by the acquirer, as well as the measures taken by it in relation to the NPL loan portfolio should be more relevant. For example, it can be argued that the acceleration of the loans and the commencement of the enforcement proceedings against the debtors by the purchaser do not represent professional lending activities. On the other hand, if the purchaser reschedules the loans or continues to collect the instalments, interest and other fees at the due dates and in accordance with the terms of the loan agreements, it would be more difficult to argue that such measures do not qualify as professional lending activity.
The main provisions of the GEO 52/2016 apply only to consumer loan agreements entered into after the date of its entry into force. Unfortunately, GEO 52/2016 does not contain transitory rules regarding the amendments brought to Law 93/2009 regarding non-bank financial institutions. As a result, the restrictions affecting the transfer of corporate NPLs seem to be also applicable to loans entered into prior to 30 September 2016.
These legislative interferences create a climate of instability in the banking sector and are likely to have a negative effect on the appetite of foreign investors to invest in deals aimed to acquire or finance the acquisition of NPL portfolios, as well as on the successful disposal of bad debt by local banks. For example, some of the largest banks in Romania are still struggling with an NPL rate above 10% and, prior to the entry into force of the GEO 52/2016, expressed on several occasions their intention to dispose of sizable bad debt portfolios.
The amendment of the Law 93/2009 is even more surprising considering the repeated recommendations and the pressure applied by the National Bank of Romania and the European Central Bank for banks to dispose of their problematic assets and to clean–up their balance sheets. In the absence of a prompt reaction from the Romanian legislator, the future of NPL deals in Romania does not seem as optimistic as before unless the National Bank of Romania intervenes and clarifies this matter.