National Bank of Serbia refines its position on the admissibility of collateral on local claims as collateral for claims of foreign creditors on Serbian debtors
Last week we criticized commented on the SNB’s interpretation of the Serbian Foreign Exchange Law with regard to the admissibility of collateral on local claims as security for claims of foreign creditors against Serbian debtors. As a reminder, NBS answered in the negative to the question of whether resident A could pledge his claim against resident B as security for the claim of a non-resident C. In its negative response, NBS did not do so. distinction between claims under loan agreements and claims under other types of transactions. NBS explained, among other things, that the realization of the pledge would have the “same economic effects” as the prohibited transfer of a local claim to a non-resident because it would convert a local claim into a claim owed to a non-resident, ” leading to an increase in Serbia’s external debt ”.
In response to our comment, NBS helpfully (albeit in an unnecessarily belligerent tone) clarified this in fact, Serbian borrowers can pledge their local claims as collateral for their debt to foreign lenders. He confirmed, in line with our argument, that such a commitment does not affect the level of Serbia’s external debt since the pledge proportionally reduces the liability of the resident borrower. This clarification puts an end to the fear that local borrowers may not be able to provide full collateral to foreign lenders.
NBS’s reaction is limited to cross-border loans, which suggests that the institution considers its initial position, that collateral on local claims is prohibited, valid for other types of claims from foreign creditors, such as claims in the framework of cross-border commercial operations, investments or construction works. Further elaboration of the political rationale for this restriction would be welcome since fulfillment of the pledge would not lead to an increase in external debt in these cases either.