New Regulation to Encourage Banks to Continue Resolving Non-performing Loans
At its meeting on 10 August 2017, the Executive Board of the National Bank of Serbia adopted the Decision on the Accounting Write-off of Bank Balance Sheet Assets, which sets out the case when a bank is obliged to write off balance sheet assets with low collectibility.
The share of non-performing loans in total loans in the Serbian banking sector is currently at the lowest level since 2009. The data of the National Bank of Serbia indicate that at the end of June 2017, this share measured 15.58%, down by 6.7 percentage points from August 2015. This confirms the effectiveness of the NPL Resolution Strategy adopted in August 2015 (hereinafter: Strategy) and the relevant action plans. In 2016, the National Bank of Serbia fully met its objectives envisaged by the NBS Action Plan for Implementation of the NPL Resolution Strategy aimed at strengthening bank capacity to resolve non-performing loans, and many of the activities envisaged by the Action Plan of the Government of the Republic of Serbia were carried out. Seeing as the data show that a systemic, interinstitutional and coordinated approach aids the resolution of non-performing loans in the Serbian banking sector, relevant institutions, in line with their responsibilities, undertake activities planned by the Strategy, whose effects have not yet been fully exhausted. The National Bank of Serbia, as the regulator and supervisor, directs banks towards resolving this issue using the instruments and supervision mechanisms in place.
Considering the complex causes behind the high level of non-performing loans in the Republic of Serbia, the manner of resolving this issue is adjusted to the characteristics of the causes and the specificities of the domestic market. Thus, after identifying regulatory solutions from comparative law practice, the new regulation introduced the obligation for banks to write off certain categories of non-performing loans with the lowest collectibility (accounting write-off is considered to be the transfer of a bank’s balance sheet assets to its off-balance sheet records). A bank’s observance of the provisions of this regulation does not imply that a bank waives its contractual and legal rights with respect to the non-performing loans that are written off, nor that it waives their collection.
To encourage banks to more efficiently resolve the issue of non-performing loans in their portfolios, the adoption of the Decision on the Accounting Write-off of Bank Balance Sheet Assets reflects the dedication and commitment of the National Bank of Serbia to further resolve this complex issue in the Serbian banking sector, in line with its responsibilities and with the aim of maintaining and strengthening the stability of the financial system.
Bank Supervision Department