Slovenia enacts Act on Purchasers and Servicers of Non-Performing Loans

On 24 February 2024, the Slovenian Act on Purchasers and Servicers of Non-Performing Loans of Banks (Zakon o kupcih in serviserjih nedonosnih kreditov bank) entered into force. The Act transposes Directive (EU) 2021/2167 of the European Parliament and Council dated 24 November 2021 on Credit Servicers and Credit Purchasers into Slovenian law. The Act creates a legal framework for the comprehensive resolution of non-performing bank loans (NPLs), sets up mechanisms for their sale and servicing, seeks to improve NPL management, and fosters the development of the secondary NPL market within the EU while ensuring consumer protection.

Details on the Directive can be found here: New EU rules on Non-Performing Loans (NPLs). This article will highlight the key features of the Act.

The Act regulates the following four main areas:

1. Obligations of NPL purchasers in relation to NPLs;
2. Obligations of NPL servicers, including licence requirements and the business of servicing of loans;
3. Obligations of credit institutions in relation to the sale of NPLs; and
4. Supervision powers of the Bank of Slovenia (BSI) as the competent authority to supervise the business of NPL purchasers and servicers of credit and certain other entities.

Key obligations of NPL purchasers

NPL purchasers do not require specific authorisation to purchase NPLs. In dealings with the borrower, however, the purchasers must comply with the provisions of the Act, the rules on contract enforcement, consumer protection, contractual relations, borrower rights, confidential business information, and general tort and criminal liability laws. This ensures that the level of borrower protection is maintained even after the assignment of claims and transfer of rights or contracts. Importantly, the Act does not override the relevant provisions of the Slovenian Code of Obligations (Obligacijski zakonik), which set out the general conditions for assignment of claims and the transfer of a credit agreement.

In addition, potential NPL purchasers have the right to obtain specific information from the credit institution selling the NPLs to assess the value of the NPLs and the likelihood of repayment. Purchasers, however, must ensure the protection and confidentiality of all business information and personal data received.

In cases involving consumer loans, NPL purchasers must appoint a licensed NPL servicer or another appropriate entity to manage loan servicing. Additionally, in some instances, non-resident NPL purchasers must appoint an agent in Slovenia.

Key obligations of NPL servicers

NPL service providers must obtain a licence from the BSI to commence loan servicing activities. The licence is valid for five years and can be renewed for another five years. Once licensed, the NPL servicers must register with the BSI’s register of the service providers, set to be established by 30 December 2024.

Exemptions from the above licensing requirements apply to:

• EU-established credit institutions;
• alternative investment fund managers authorised or registered in Slovenia, and management companies or investment companies (if they have not appointed a management company) on behalf of the fund they manage; and
• entities licensed under the Slovenian Consumer Credit Act (Zakon o potrošniških kreditih) to provide consumer credit services and real estate finance leasing services.

These exempt entities are already regulated and supervised. They are still required to comply with specific provisions of the Act, particularly regarding their obligations to borrowers, reporting requirements to the BSI, and adherence to the supervisory mechanism.

Credit servicing activities carried out by notaries, enforcement officers, and attorneys-at-law domiciled or established in Slovenia are also exempt when these activities are performed as part of their professional duties or in other cases explicitly regulated by law.

The Act allows NPL servicers to passport their licences to other EU member states. This process involves notifying the BSI, which then informs the relevant national authority in the host member state. Unlike in some EU member states, however, the Act prohibits the NPL service providers from holding funds from borrowers for the purpose of transferring them to NPL purchasers, even if the host member state permits this practice.

Key obligations of credit institutions

A credit institution in Slovenia intending to transfer a NPL must provide the potential purchaser with necessary information (aligned with the technical standards under Regulation (EU) no. 1093/2010) about the loan and any collateral before finalising the NPL agreement.

Credit institutions are also subject to semi-annual reporting requirements to the BSI and to the competent authority of the host EU member state for the purposes of supervision by the competent authority. Such reports must, among others, include identification of the NPL purchasers, outstanding amount of NPLs or the aggregate amount in the loan portfolio transfer, number of NPLs transferred and the average outstanding amount, whether the non-performing credit is concluded with consumers, as well as any other information necessary for supervision by the BSI.

BSI’s supervisory role

The BSI oversees the compliance of NPL service providers, NPL purchasers and credit institutions. In the event of breaches, the BSI has the authority to impose corrective measures, including, among others, restricting NPL servicing operations, ordering the removal of specific individuals from the management of service providers, or, in extreme cases, revoking the licence.

The BSI may also impose administrative penalties. In some cases, penalties can be as high as EUR 150,000, with penalties for responsible individuals reaching EUR 10,000.

Conclusion

The Act on Purchasers and Servicers of Non-Performing Loans of Banks represents a development in Slovenia’s financial regulatory landscape. It is, however, still unclear whether the secondary market for NPLs, as the Directive foresees, will fully materialise in Slovenia. Currently, there are no significant NPL sales taking place, raising questions about the market’s readiness and the law’s practical impact. While the framework sets the stage for improved transparency and compliance, its impact on market activity and cross-border integration remains to be seen.

For more information on the developments of the Slovenian NPL market, contact your CMS client partner or these CMS experts: Maja Žgajnar, Irena Šik Bukovnik, Neža Vončina.