National Bank of Serbia
 
Leasing Supervision

FAQ - Implementation of Secondary Legislation Enacted Pursuant to the Financial Leasing Law

Decision on the Obligation of Lessors to Maintain a Reserve Balance ("RS Official Gazette", No. 21/2010)


Guidelines for Implementing the Decision on the Obligation of Lessors to Maintain a Reserve Balance  ( "RS Official Gazette", No. 25/2010 )

 

What is the reserve balance?

A lessor reserve balance is the amount a lessor is required to maintain in a special account opened with a bank, and which is calculated by applying the prescribed rate on the prescribed base.

What comprises the reserving balance?

The base for the calculation of reserve balance is the balance of liabilities under credits, other types of borrowing and supplementary payments from abroad received by the lessor since 10 December 2005, including liabilities under interest, as at the last day of the month preceding the calculation. 
Lessors are not required to calculate the reserve balance on:
    1) payments made by founders for the purpose of increasing core capital;
    2) liabilities against funds received from international financial organizations, governments and financial institutions founded by foreign states where such funds are received through the intermediation of the government as the principal borrower and/or owner of such funds, or where such funds are received directly provided full compliance with creditor agreements is ensured in the process of re-lending such funds through leasing operations;
    3) subordinated liabilities.

Subordinated liabilities are those where:

- the creditor of the lessor has paid the contracted amount in full;
- the initially contracted maturity is minimum five years;
- no security for debt has been issued;
- in case of lessor liquidation or bankruptcy, settlement of such liabilities is of subordinate priority relative to other claims not considered to be subordinated;
- they can be used to cover losses only upon lessor’s liquidation;
- lessor’s creditor is not at the same time its subordinated debt lender;
- no payments to creditors prior to maturity are possible unless creditors’ claims are converted into the lessor’s capital. 

Subordinated liabilities may be exempted from the calculation of reserve balance if the National Bank Serbia, at the lessor’s request and based on the relevant documentation enclosed, determines that the conditions specified therein have been met.
Beginning from the maintenance period 16 April–17 May 2010 and ending with the maintenance period 18 August–16 September 2010, lessors may reduce their reserve base by the amount of long-term investments for the purchase of durable consumer goods produced in the Republic of Serbia that have been approved under the Government Programme of Measures for Mitigating the Effects of the Global Economic Crisis adopted in the government session of 29 January 2009 (hereinafter: Government Programme). Lessors must record data on such investments on special analytical accounts and support them with documentation showing unambiguously that the investments were approved in line with the Government Programme. The amount of investments subtracted from the reserve base must be shown separately in the calculation of the reserve balance. 
The reserve base is disclosed in euros and US dollars if credits, other types of borrowing and supplementary payments from abroad are denominated in those currencies. If, however, credits, other types of borrowing and supplementary payments from abroad are denominated in other currencies, they are to be re-calculated to euros by applying the official middle exchange rate for the dinar effective on the date of establishing the reserve base. 

When is the reserve balance calculated and allocated?

The reserve balance is calculated and allocated on the 18th of the month against the reserve base as at the last day of the prior month. If the 18th of the month falls on a non-business day, reserves are allocated on the first preceding business day. The calculated amount of reserves is applicable for the maintenance period lasting from the 18th of the current month to the 17th of the following month, and/or to the date when lessors are required to allocate reserves for the next maintenance period. Lessors are obligated to maintain the reserve balance in euros and US dollars on a special account opened with a bank. The reserve balance allocated can be no less than the reserve balance calculated for the relevant maintenance period.

How is the reserve balance calculated?

Reserve balance is calculated by applying the following rates:

1) beginning from the maintenance period 16 April–17 May 2010 and ending with the maintenance period 18 August–16 September 2010
   - 20% – up to the level of reserve base as at 30 September 2008;
   - 0% – on the positive difference between the balance of liabilities as at the last day of the prior month and 30 September 2008.

If the reserve base as at 30 September 2008 is lower than the reserve base as at the last day of the month preceding the calculation of reserve balance, the rate of 20% is to be applied on the reserve base as at 30 September reduced by the amount of investments approved under the Government Programme.
If the reserve base as at the last day of the month preceding the calculation of reserve balance is lower than the reserve base as at 30 September 2008, the rate of 20% is to be applied on the reserve base as at the last day of the prior month reduced by the amount of investments approved under the Government Programme.

2) beginning from the maintenance period 17 September–17 October 2010 and ending with the maintenance period 18 November–16 December 2010 – 15% on the reserve base as at the last day of the prior month.

3) from the maintenance period 17 December 2010–17 January 2011 onwards – 10% on the reserve base as at the last day of the prior month.
 

Notification of the National Bank of Serbia on the obligation to maintain the reserve balance

By the 20th of the current month lessors must submit to the National Bank of Serbia the applicable reserve balance calculation on the prescribed form (certified by the authorized person’s signature and the lessor’s stamp), as well as evidence that the reserve balance is maintained on a special account opened with a bank (reserve balance account statement as at the first day of the applicable maintenance period, certified by the authorized person’s signature and the bank’s stamp).
Through the Guidelines for Implementing the Decision on the Obligation of Lessors to Maintain a Reserve Balance, the National Bank of Serbia has prescribed the forms on which lessors are obligated to submit their reports on the calculated amount of reserve balance (download here). The forms include:
   LOR-1 Form – beginning from the maintenance period 16 April–17 May 2010 and ending with the maintenance period 18 August–16 September 2010 – for the calculation of reserve balance made by applying the rate prescribed by Section 4, paragraph 1, provision 1 of the Decision;
   LOR-2 Form – beginning from the maintenance period 17 September–17 October 2010 and ending with the maintenance period 18 November–16 December 2010 – for the calculation of reserve balance made by applying the rate of 15%;
   LOR 3 Form – from the maintenance period 17 December 2010–17 January 2011 onwards – for the calculation of reserve balance made by applying the rate of 10%.

Lessors that are not obligated to maintain a reserve balance pursuant to the provisions of the Decision should notify the National Bank of Serbia thereof within the deadline prescribed for the submission of the reserve balance calculation report.

 

How is the fulfillment of the requirement regarding minimum purchase value of the lease object of EUR 2,000 assessed?

The fulfillment of the requirement regarding minimum purchase value of the lease object of EUR 2,000 will be assessed based on the purchase value of the lease object from one financial lease contract, regardless of whether the subject of that contract is one or more moveable consumer durables.

Who does the limitation regarding minimum share and maximum debt refer to?

The limitation regarding minimum share and maximum debt, prescribed in the Decision, refers to natural persons only, where natural persons do not include entrepreneurs and agricultural producers if the lease object serves for the performance of their basic activity.

In the case of financial lease contracts concluded for the period of up to ten years, natural persons will be required to pay the share which amounts to no less than 20% of the gross purchase value of the lease object (price with VAT – price applicable if you buy the object for cash). Exceptionally, the lesee – natural person is not required to make a downpayment to the lessor under financial lease contracts concluded in the period from 2 March 2009 to 31 December 2009.

Credit debt of natural persons under a single contract cannot exceed 30% of such person’s regular income, which means that the sum of all credit obligations (including warranties) and leasing obligations cannot exceed 30% of regular income of a given natural person. Data on debt will be obtained from the Credit Bureau.

In their business policy, lessors determine the manner and methodology of evaluating the creditworthiness of lessees that are not deemed natural persons in the abovementioned sense.

What is the effective lease fee rate?

Effective lease fee rate (ELR) represents the total cost of financing which, in addition to interest, includes all other costs of concluding a lease contract.

The methodology for calculating ELR is prescribed in the Decision and Guidelines for the implementation of that decision, ensuring uniformity in the calculation of this rate, as well as enabling comparability of this rate among different lessors, and its comparability with the effective interest rate disclosed by banks. The calculation of the ELR includes only those costs of concluding a financial lease contract that the lessee credits to the account of the lessor.

ELR represents one, but not the only, element of comparing different offers for financing the procurement of an object. For details on elements to which attention should be paid when comparing different forms of financing please see: Principal Elements to Consider at the Time of Concluding a Financial Lease Contract.