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Sejko: Problems with collecting bad loans require legal changes

2024-05-21 13:41:57Biznes SHKRUAR NGA REDAKSIA VOX

Sejko: Problems with collecting bad loans require legal changes

The Governor of the Bank of Albania, Gent Sejko, was today at a hearing in the Parliamentary Committee on Economy and Finance on non-bank financial entities that buy problem loans.

Governor Sejko clarified that, with the regulatory changes of March 2016, the purchase of credit was considered a form of lending. Through licensing, the activity of buying and selling loans, based on the aforementioned articles of the Civil Code, is regulated and controlled by the Bank of Albania, subject to all supervisory obligations, including: reporting to the Credit Register, periodic reports, risk management through on-site inspections, external analysis and ongoing surveillance.

According to the Bank of Albania, there are currently 5 entities, which, in addition to the lending activity, also carry out the activity of purchasing problem loan portfolios.

"Further commercial relations between banks and these institutions, in relation to the sale and purchase of the problem loan portfolio, are not the competence of the Bank of Albania. They are regulated through contracts concluded between the parties by the Civil Code. In the following years, the expansion of this sector was also accompanied by the further improvement of the legal and regulatory framework. New and improved requirements were approved for the process of licensing and provisioning of purchased loans, consumer protection and ethics in granting and administering loans in the system," said Sejko.

Specifically, the Bank of Albania limited the penalties charged to the borrower of the consumer loan to the extent of 30% of the amount of the unpaid obligation. This came as a necessity, in the conditions when the accumulated penalties for problem loans can exceed the loan principal several times. Also, consumer credit interest rates were limited, through the adoption of the "maximum NEI" concept as an upper limit for effective interest rates. This change aims to strengthen consumer protection against high credit costs, divided into interests, commissions and fees.

Also, in order to ensure transparency and customer protection, the following have been updated:

Regulation no. 59, dated 29.08.2008 "On transparency for banking and financial products and services", which defines the requirements on the manner and form of providing information to customers on banking and financial products and services offered by the subjects of this regulation;

Regulation no. 48, dated 01.07.2015 "On consumer credit and mortgage credit";

Currently, after the imposition of these restrictions, the average level of the effective interest rate applied by non-bank financial institutions (which includes interest, commissions and any other type of fee applied to consumer credit), has been reduced by 3 times, compared to the period before the introduction in their power. Meanwhile, we emphasize that according to the implemented formula, the trend will always continue to be downward.

According to the Governor, from the moment of licensing, all these subjects have regularly been subjected to continuous inspections of the Bank of Albania, from abroad and locally, full and partial examinations, as well as 3-month monitoring of statements and indicators financial.

"The object of supervision is every aspect of the activity of the subjects that is included within the legal duties and powers of the Bank of Albania, which are regularly exercised against every financial subject supervised by it, bank and non-bank. Concretely, the MCA subject has undergone, in a regular manner, all the above inspections by the Bank of Albania. To address the deficiencies identified, the subject was given a number of recommendations for follow-up. In 2022, after ascertaining that the recommendations had not been implemented and the problems had not been sufficiently addressed, the Bank of Albania escalated the measures against this entity by suspending the exercise of lending activities (including the purchase of new loans), for which it was licensed. In the last examination (December 2023), the Bank of Albania took a more severe measure, which, although classified as a suspension, placed the MCA under the conditions of a "de facto revocation" of the license. Thus, the MCA was prohibited from exercising the activities for which it was licensed, being allowed only to sell the portfolio it administered to entities licensed and supervised by the Bank of Albania, as well as the immediate reflection in the reduction of the obligation, of any payment performed by the client," he said.

According to him, the suspension and revocation of the license are the most serious administrative measures that the Bank of Albania can take when it finds violations during the exercise of its supervisory function. The suspension limits the financial activities that the licensed entity can carry out, until the violations are corrected, or the recommendations are fulfilled. While the revocation definitively prohibits the entity from performing the activities for which it is licensed.

"The revocation of the license is the last measure for an entity, as this measure automatically takes the entity out of the supervisory jurisdiction of the Bank of Albania, making the position of its borrowers worse for several reasons: First, the revocation does not release the borrowers from repayment of their obligation; these obligations constitute executive titles and, as such, are subject to mandatory execution procedures by the judicial enforcement service, even after the license has been revoked. Secondly, the revocation of the license makes it impossible for the Bank of Albania to handle customer complaints against entities, which are no longer supervised and therefore no longer have a reporting obligation. Thirdly, the revocation interrupts any reporting of these companies in the Credit Registry and any communication with the Bank of Albania. Even in case of full repayment of the obligation against the subject, the status of borrowers would remain unupdated in the Credit Register, placing them unfairly in a penal status. Finally, the revocation of the license creates a false expectation among the borrowers that through the cessation of the subject's lending activity, the obligation to repay the loan is extinguished. Borrowers may perceive that non-payment of obligations exists as an option, which leads to an increase in problem loans in the banking system, and puts citizens' savings at risk, and consequently, the country's financial stability," said the Governor.

According to him, for all these reasons, the suspension of the license and the determination of a deadline for the sale of the portfolio to any other licensed entity, aims to protect borrowers from abusive practices and the problems mentioned above.

The governor said that the MCA company has 15,942 borrowers in its portfolio. Of these, about 90% have received a court decision and/or are in the enforcement process. This means that for 90% of cases there is a court decision that determines the value of the borrower's obligation. In total, MCA has purchased portfolios with a value of 9.6 billion ALL, of which about 10% has been recovered.

Since the moment of licensing, until today (2016-2024), about 85 complaints against this entity have been filed and handled in the Bank of Albania. These complaints have received maximum attention from the Bank of Albania and have been treated without exception, in accordance with and in full compliance with the legal and regulatory framework of the institution.

"The greatest weight within these complaints is occupied by those related to the process of mandatory execution by the enforcement service. This process is also a concern for the operational management of banks due to the extremely high number of seizure orders that are filed every day by the enforcement service and that force the blocking of debtors' accounts in unreasonable terms.

The mandate of the Bank of Albania is clearly defined in its organic law, which, with the aim of protecting the country's financial stability, authorizes the Bank of Albania to regulate, license and supervise entities that are part of the financial market, only within the categories it recognizes. this law.

The activity of the judicial enforcement service is not licensed or supervised by the Bank of Albania. The legal framework does not give the Bank of Albania the power to order the prohibition/suspension of the processes of execution of obligations, nor to monitor the financial burden that this service creates on citizens. This is a competence that the law recognizes only for the court. Consequently, the activity of the judicial enforcement service is not subject to control by the Bank of Albania.

At this point, we emphasize that the legal authority of the Bank of Albania ends the moment the court issues the execution order to recover the unpaid loan. Any process beyond this moment (auctions, imposition of seizures or any other procedural action undertaken by the enforcement company) is outside the legal powers of the Bank of Albania and cannot be followed or regulated by it. The Bank of Albania cannot even interfere in the relations that MCA has with the entities it contracts, such as the case of the judicial enforcement service," the Governor emphasized.

According to the revisions of the Civil Code, all contractual relations are related to free will between the parties and for disputes that may arise during the execution of contractual obligations, only judicial bodies have the jurisdiction to resolve them.

Also, Article 36 of the Civil Procedure Code provides that no other institution can consider a civil dispute, which is being judged by the court.

According to him, the Bank of Albania has continuously suggested coordinated actions for an inherent improvement of this whole process. But, by their very nature, these actions require the involvement of other parties as well.

"Specifically, we consider that it is necessary to make changes in:

The Code of Civil Procedure for the regulation of all procedural actions of bailiffs during the execution of executive titles;

Drafting, in cooperation with the World Bank, of a special law for consumer protection in the activity of non-bank financial entities;

The translation into laws of the regulatory changes undertaken by the Bank of Albania, on the establishment of ceilings for penalties and interest rates;

The transformation of all non-bank financial entities into joint stock companies, with the aim of increasing internal control and organizing 2-level management;

Accounting registration of only the principal and interest in the case of the purchase of portfolios, at least until the determination of legal ceilings for interest rates," said the Governor.


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