New Slovak rules for non-performing loans go into effect for existing creditors

The new Slovak Act on NPL Servicers and NPL Purchasers, which went into effect on 1 June 2024, will apply to existing non-performing loan (NPL) creditors in Slovakia beginning 1 December 2024. The new Act transposes Directive 2021/267 of the European Parliament and Council, dated 24 November 2021, into the Slovak legislation. Previously, servicing and purchasing of NPLs was not regulated in Slovakia, leading to numerous challenges for NPL service providers and NPL purchasers. The Act aims to address these issues, enhance the management of NPLs, and promote the development of the secondary NPL market within the EU.

Details on this Directive can be found here: New EU rules on Non-Performing Loans (NPLs) (cms.law). The following article highlights the specific Slovak features of the NPL regulation.

Selected obligations of NPL servicers

To conduct NPL servicing requires a licence granted by the National Bank of Slovakia (NBS), unless the NPL service provider is one of the following:

• a credit institution;
• a management company or independent investment fund;
• a creditor with a consumer loan licence from the NBS.

This licence is issued to NPL service provider upon an application. Once granted, the NPL service provider is obliged to register as the NPL servicing activity in the Commercial Register of the Slovak Republic. Additionally, the NPL service provider must establish a separate and independent body for internal control and on an ongoing basis clearly demonstrate the assessment of both individual and collective professional competencies of individuals in management or individuals in key positions in the NPL service provider.

Slovakia opted for the possibility of the NPL service provider to hold funds from borrowers in order to transfer them to NPL purchasers.

NBS must give prior consent to a NPL service provider in the following situations:

• an appointment of a new person to the management or to key positions in the NPL service provider;
• acquisition of a qualifying holding in the NPL service provider or a further increase of the qualifying holding representing at least 20%, 30% or 50% shares in capital or acquiring voting rights in the NPL service provider or where the holding becomes a subsidiary of an acquirer.

A creditor already in possession of a consumer loan licence from the NBS may continue in its business under the Act if it performs the following:

• adjusts it internal rules and procedures in compliance with the Act;
• opens a separate payment account for that purpose if it intends to hold funds from borrowers; and
• provides prior notification to the NBS of its purpose.

These obligations must be fulfilled by 30 November 2024 at the latest – 30 days prior to beginning the provision of NPL services under the new Act.

In contrast to the consumer loan licence (applicable only in Slovak territory), the passporting of the NPL service-provider licence is possible in the same way as the passporting of other regulated activities in the financial sector.

Selected obligations of NPL purchasers

NPL purchasing remains an unregulated business activity since the NPL purchaser is not acquiring a new loan along with the prudential worries from such a purchase. This business activity can be done based on a free trade licence.

If the NPL purchaser does not hold the NPL service provider licence, it is obligated to appoint a NPL service provider or an alternative entity for the purpose of NPL servicing (i.e. credit institution or a creditor with the consumer loan licence). Moreover, the NPL purchaser must register and eventually update the data about the NPL debtor in the NPL purchase in the relevant electronic debtor register.

New obligations for credit institutions

Credit institutions selling NPLs have obligations to both the NPL purchasers and the NBS. They must provide necessary information regarding the creditor’s rights under a NPL agreement. If applicable, they must provide the collateral in order to conduct its own assessment of the value of such rights, and the likelihood of recovery of the value of that agreement prior to the transfer, while ensuring the protection of information made available by the credit institution and the confidentiality of business data. Credit institutions must also report to the NBS on a semi-annual basis.

Supervision

According to the Act, the NBS supervises the compliance of NPL service providers, NPL purchasers, and credit institutions. If the NBS identifies deficiencies, such as non-compliance with licensing conditions or obligations stipulated in the Act, it has the authority to impose remedial measures, such as prohibiting NPL servicing activities abroad, restricting certain NPL servicing operations, or ordering the removal of specific individuals involved. If the conditions are met, the remedial measures can be enforced in form of a preliminary injunction.

The NBS may also impose administrative penalties. In cases of serious or repeated violations of statutory obligations, penalties can be as high as EUR 650,000. In certain cases, a penalty can be imposed on management or persons holding key functions in the NPL service provider. If assessed a penalty, the respective person is to lose his or her position, and the NPL service provider is obliged to recall him or her without delay.

Applicability

This new Act went into force on 1 June 2024. Creditors already engaged in NPL servicing in the Slovak Republic as of that date, however, may continue in their activities without a licence until 30 November 2024.

For more information on Slovakia’s new rules surrounding NPLs, contact your CMS client partner or these CMS experts: Juraj Fuska, Zuzana Nikodémová, Klaudia Ježíková.