Banking Law in Serbia – Loan and Credit Agreements

One could point out that the modern economy is based on Loan and Credit Agreements. Banking law in Serbia is quite developed. This especially when we speak about foreign lenders as parties securing such credits. Namely, this matter and Banking Law in Serbia becomes particularly interesting in the case of a foreign Loan or Credit Agreements being situations when the loan is being approved by a foreign entity to the Serbian resident.

Foreign Loan or Credit Agreements

(hereinafter: the Agreements or the Agreement)

Briefly, the state body overseeing the procedure re: foreign credits and loans in Serbia is the National Bank of Serbia (NBS). Among other obligations, the borrower resident is obliged to report to the NBS of the credits and loans approved by the lender or creditor nonresident, per the Decision of NBS on Reporting on Foreign Credit Transactions (Decision). This Decision is based on Article 24 of the Law on Foreign Exchange Operations of the Republic of Serbia. Additionally, the borrower resident is obliged to provide NBS also with a draft of such agreement for approval, before its signing.

Specific Cross-default situation

As legal terms in these Agreements may differ re: legal provisions (as the laws or provisions of laws of one country may not be applicable in another), the NBS may interfere requesting certain amendments. For example, in order to receive funds it is not uncommon for a borrower to introduce a guarantee (possibly another business entity, usually related legal entity of the borrower from a third country) to these Agreements, by signing a Guarantee Agreement. It goes without saying that both of these agreements are in correlation with one another and are Transaction Documents of such foreign credit deals.

More precisely, when regulating a cross-default situation, if a guarantee is a nonresident and not a party to the Agreement itself than the lender or creditor may not declare the loan due in the event of the occurrence of circumstances related to such nonresident – event of default.

Such interpretation is not to ease the obligations and responsibilities of the borrower but in avoiding the earlier repayment of the loan obligation due to the occurrence of circumstances that are related to nonresidents not participants in the Agreement, and which circumstances the borrower could not influence, per the NBS.

Natural person as a party in foreign credit deals

In addition, the party to a Guarantee Agreement and/or Agreements in foreign credit deals cannot be a natural person.

Looking ahead

To conclude, even though the Agreements may be tailored to suit the unique needs for all parties, it is important to have in mind the complexity of such foreign deals by taking the time to foresee any and all situations in advance and try to predict them.

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