Category: Issue 11.12

Did you know that corporate bonds in Moldova are unlocking a financial transformation, raising millions for businesses, and opening doors for investors? For years, Moldova’s capital markets have been characterized by limited activity, primarily consisting of equity securities and government bonds. The emergence of corporate bonds marks a significant turning point, signaling a transformation in the country`s financial ecosystem. Recent regulatory reforms and successful stories of bond issuances are redefining the market, creating new investment opportunities for market participants.

Reshaping Moldova’s Financial Landscape

The revival of corporate bond activity in Moldova was spurred by the initiatives of leading financial institutions like Moldova Agroindbank (Maib). In 2023, Maib launched its first corporate bond program, raising MDL 258 million from over 740 investors through a public offering. This marked a significant milestone, demonstrating both the demand for alternative investment instruments and the development of Moldova’s financial sector. Building on this momentum, Maib’s subsequent bond programs have further expanded the market, offering competitive returns and attracting diverse investor classes, including retail and institutional participants.

Legal Framework

The issuance of corporate bonds in Moldova is governed by the Law on the Capital Market, No. 171/2012, supported by regulatory guidelines issued by the National Commission for Financial Markets (Commission). In 2022, the Commission introduced the Practical Guidelines for the Issuance and Trading of Corporate Bonds, offering much-needed clarity for both issuers and investors regarding the procedural and regulatory requirements. While joint-stock companies have long had the legislative foundation to issue bonds, significant progress was achieved in May 2022 through amendments to the Law on Limited Liability Companies, No 135/2007. These amendments simplified the issuance process for limited liability companies (LLCs), making it more accessible for LLCs to access the bond market.

Legal Requirements for Issuers

The procedure for issuing corporate bonds in Moldova varies based on whether the issuance is conducted through private placement or public offering. Both processes share core steps, albeit with distinct regulatory nuances. The key steps for bond issuance are: (1) Approval of bond issuance by the issuer’s governing body, which defines the bond type, interest rate, maturity, and issuance size. Public offerings require the engagement of an authorized investment firm, while for private placements this step is optional but recommended. (2) Preparation of subscription agreement, which outlines terms for investors. Public offerings require additional documentation, including a prospectus and, where applicable, collateral-related agreements or guarantees. (3) Opening a temporary bank account to collect subscription funds. (4) Placement of bonds to a selected group of investors (in case of private placement) or to the general public (in case of public offering). (5) Approval of reports and investor list detailing the issuance results, including the final list of subscribers (investors). (6) Submission to the Commission of the issuance report and supporting documentation for the purposes of registration in the Register of Securities Issuers and subsequently with the Central Securities Depository. (7) Utilization of funds after completing the issuance process. Private placement and public offering differ not only in terms of the placement method but also by security type. Therefore, there are secured bonds, which are backed by sufficient and solid guarantees, such as pledges of the issuer’s assets, third-party assets, bank guarantees, third-party guarantees, or insurance policies; and unsecured bonds, which are not backed by specific assets but can be issued if the issuer meets certain conditions set by regulatory authorities.

Corporate Bonds Are a Game-Changer – And the Roadblocks Ahead

Corporate bonds are transforming how companies in Moldova access capital. For issuers, they offer a smarter way to secure long-term funding while keeping full ownership intact. They also enable companies to align repayment schedules with their operational cash flows, making them a more practical alternative to traditional loans. For investors, corporate bonds provide a stable, higher-yielding alternative to traditional savings options. However, challenges persist, including the need for greater financial literacy among the populace and the development of a robust secondary market to ensure liquidity.

The Way Forward

Moldova’s corporate bond market is at a pivotal juncture. The combination of a supportive regulatory environment, successful issuances, and growing interest from both issuers and investors underscores its potential. By addressing existing challenges and leveraging opportunities for innovation, Moldova can position itself as a competitive player in the regional capital markets. Corporate bonds have the potential to serve as a transformative force in Moldova’s financial future. As the market matures, these instruments will become a cornerstone of the country’s economic growth, enabling businesses to access capital while offering investors reliable opportunities.

By Nicolina Turcan, Head of Fintech and E-Payments, ACI Partners

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Cash pooling arrangements allowing companies to optimize their cash and better manage liquidity have been present as part of the financial product offered by banks to their clients for some time now.

While the notional cash pooling involving the consolidation of cash balances for the purpose of calculating interests is regularly used in practice, the physical cash pooling involving physical transfer of funds between bank accounts (providing optimization of liquidity management) is rarely used.

Even though there is no statutory framework regulating cash pooling arrangements, definitions of notional and physical cash pooling are imposed in the by-laws enacted by the Croatian National Bank for the purpose of collecting information on transactions between residents and non-residents.

In the CNB’s Instructions on Collection of Reports (CNB Instruction) envisaged under the Decision on Collection of Information for the Purpose of Drafting the Balance Sheet, Foreign Debt and International Investment Levels Delivered to the CNB in Electronic Form (CNB Decision), cash pooling is defined as a specific financial product that enables the consolidation (viewed as a net balance) or aggregation of positive and negative balances on bank accounts of different entities onto a single (master) account.

Depending on the type, cash pooling is classified under the CNB Instructions as either lending activity or deposit-taking activity.

The physical cash pooling models involving the actual transfer of funds from residents to non-residents and vice-versa are classified under the CNB Instruction as other lending activities and have to be reported as such to the CNB.

If there are no physical transfers of funds from residents and non-residents and the residents have full and unrestricted control over the funds in their accounts opened in a foreign financial institution participating in the notional cash pooling, such a transaction is considered deposit-taking activity as per the CNB Instructions.

Thus, according to the mentioned by-laws, physical cash pooling should be deemed as lending activity, at least for the purpose of appropriate reporting to the CNB.

In practice, the notional cash pooling arrangement is regularly practiced and offered by the banks as part of their services. The model is mostly established between the mother company and its subsidiaries having the bank accounts opened with the same bank which operates the cash pooling arrangement based on the cash pooling agreement entered into between a bank and each cash pooling participant.

Physical cash pooling is rarely, if at all, used in practice.

The question that arises is whether the physical transfer of funds would even be possible without it being legally grounded and what would that ground be.

Having in mind the by-laws regulating physical cash pooling for the purpose of CNB reporting, it is likely that such arrangements would need to be structured as intra-group loans – either by the subsidiary in favor of the mother company (to fulfill the target budgeting) or by the mother company to the subsidiary in order to allocate the funds collected at the treasury account, representing also the ground for banks to do the transfers.

Provided that would be the case, physical cash pooling could have certain tax and legal consequences.

Consequences Connected to Physical Cash Pooling

From the “borrower’s” perspective, the companies should observe the withholding tax aspects of the transaction as well as the interest deductibility rules which could be relevant to interest expenses they would be charged.

When in a “lender’s” position, the transfer pricing rules would determine the level of interest income relevant for the lender.

One of the legal consequence is that the physical cash pooling could be considered as hidden distribution of profits prohibited under the Croatian Companies Act provided the funds are not fully recoverable by the participating companies.

Furthermore, the cash pooling arrangement could be challenged by the company’s creditors or bankruptcy trustee in the event of insolvency provided such an arrangement impacts the company’s liquidity and jeopardizes the company’s ability to fully fulfill its payment obligations. The consequence of successful challenges would be the obligation of the company to reimburse the amount transferred under the cash pooling arrangement back to the “paying” company. 

Final Remarks

While there is no legal obstacle to entering into cash pooling arrangements involving the physical transfer of funds, the underlying agreement would most probably be regarded as a loan agreement (intercompany loan agreement) having certain consequences (both legal and tax-wise) that need to be taken into consideration when structuring such a transaction as a mode of optimizing the cash management of the group companies.

By Martina Kalamiza Grozdek, Partner, Lovric Novokmet & Partners

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The investment volume curve concerning Serbia’s capital markets and trading on the Belgrade Stock Exchange is on a downward trajectory as of the end of the second round of mass privatizations and the start of the 2008-2009 economic crisis.

Even at its peak, Serbia’s capital market and trading volumes were rather underdeveloped and insignificant in comparison to the ones in the EU.

In order to U-turn the current situation, the Ministry of Finance, together with the World Bank, has started the Catalyzing Long Term Finance Through Capital Markets Project (Project). The World Bank granted a EUR 27.7 million loan to support Serbia in developing its corporate bond market and enhancing the participation of the private sector in financing investments.

The Project, which started this year and is intended to be in place for three years, aims to facilitate the issuance of bonds solely by privately-owned Serbian companies with a positive financial track record in recent years.

On the Project

The three main phases of the Project are the following: Phase 1 – application by the interested issuer and confirmation of its eligibility by both the ministry and the World Bank; Phase 2 – due diligence over the issuer by both legal and financial experts proposed by the issuer (legal and financial experts are to be selected by the issuer from the list of experts that qualified under the Project – MMD Advokati being one of the chosen legal experts); and Phase 3 – preparatory actions for and issuance of bonds.

Other key details include:

Interest – to be determined at a later stage and will differ from issuer to issuer. The interest is initially set by the issuer themselves together with the financial advisor, but it can be adjusted depending on the situation of the market.

Bond issuance – there is no strict minimum or maximum amount of bond issuances per issuer, however, some EUR 3 million are considered the lowest acceptable bond issuance. 

Bond type – there are no restrictions. Bonds may be plain vanilla, green, coupon, thematic, etc.

On Issuers

So far, the response and interest of issuers is at an enviable level. This is rather expected as this allows issuers to avoid banks’ financing. At the same time, the criteria and conditions of the Project are rather flexible and favorable for potential issuers. As an example, the issuer has no obligation to have a specific purpose/project for which bonds are issued (although it is recommendable as this will ease attracting investors). At the same time, the entire cost of legal and financial due diligence and of the credit rating agency is covered by the ministry. The only cost to be borne by the issuer is 20-25% of the amount and expenses in the issuance process itself if the issuance is successful, though even this cost does not apply if the issuer is fully owned by women. Furthermore, the issuers see entry in the Project as a step closer to an eventual IPO.

The first issuance of bonds under the Project is expected at the very beginning of 2025 and the first issuer is expected to be one of the largest and most reputable privately-owned companies in Serbia.

On Investors

The ministry will fully support eligible issuers and will organize roadshows in Serbia and the region in order to present the Project and attract both domestic and foreign investors (like the EBRD and other IFIs).

In the process of attracting investors, the ministry is considering further tax incentives which would make the whole scheme even more attractive. 

Outcome Prediction

This may not be the first attempt of the Serbian government to change the climate of the capital market and make it attractive but it is certainly the most serious and dedicated one. The initial conditions – the full backing of the World Bank and a positive climate on the worldwide capital markets – are met. Thus, the success remains dependable only on the sufficient number of reputable issuers and, later on, the full coverage of issued bonds by credible investors.

Ultimately, the success will highly depend on the outcome of the first couple of bond issuances under the Project. If these go well and smoothly and the emissions are looted, this will be a boost for other reputable companies to join the Project and the spiral of success would be in place.

By Rastko Malisic, Partner, MMD Advokati

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The inherent volatility of the financial market offers many opportunities but also poses significant risks. Following the 2007-2008 financial crisis, legislators in the European Union struggled to contain the non-performing exposure (NPE) cycle through legislative action.

As the next crisis loomed over the market as a result of COVID-19, the European Commission took decisive action and issued an NPE-related communication – COM (2020) 822 Final (NPE Action Plan) – which tackled non-performing loans in the aftermath of the pandemic. From the NPE Action Plan, Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU (NPL Directive) emerged.

Overview of the NPL Directive

The NPL Directive aims to employ solutions that reduce the risks associated with non-performing loans (NPLs) on banks’ balance sheets and prevent their future accumulation. The NPL Directive is primarily concerned with the supervision of credit servicing companies, the introduction of unified rules for obtaining authorization to operate, and the maintenance of a publicly accessible list of licensed credit servicing companies. It also establishes transparent rules for credit servicers’ contact with borrowers and for conducting cross-border credit servicing activities.

Implementation in Poland

While the NPL Directive has not yet been implemented into the Polish legal system, a draft law of the Act on Credit Servicers and Credit Purchasers (Draft NPL Act) is currently pending in the Polish legislative process.

The Draft NPL Act establishes strict requirements for obtaining a license that permits credit servicing. It also establishes a register of credit servicing entities kept and supervised by the Polish Financial Supervision Authority (KNF) and introduces internal procedure and policy requirements for credit servicing entities, including risk assessment and management systems, borrower rights protection procedures, borrower financial assessment, and anti-money laundering procedures.

Additionally, the Draft NPL Act introduces a framework for credit servicing agreements by setting out obligatory contractual provisions, aimed at protecting the interests and rights of borrowers and credit purchasers.

Lastly, the Draft NPL Act positions the KNF as the primary authority overseeing credit servicing activities. It grants the KNF powers such as requiring changes to credit servicing entities’ policies and procedures, amending or terminating credit servicing agreements if found non-compliant with the Draft NPL Act, imposing fines, and even revoking credit servicing agreement licenses with immediate effect.

Potential Impact of the Draft NPL Act

While the Draft NPL Act provides for a robust regulatory framework, smaller financial entities may face issues adapting to these stringent regulations. For such institutions, compliance with the Draft NPL Act in its current form can prove costly both in terms of resources and financials considering the administrative and operational costs required to adhere to the regulation.

Furthermore, smaller entities might face a disproportionally greater challenge adhering to procedural requirements, potentially leading to market exits. This could limit competition and foster a less accessible secondary NPL market dominated by larger entities better prepared to handle regulatory pressure.

Emerging Opportunities in Poland

The rules and obligations introduced in the Draft NPL Act, such as increased borrower protection and regulatory clarity and oversight, can potentially make the growing secondary NPL market in Poland a more viable and stable option, even in times of economic downturn and uncertainty. This has the potential to attract new investors to the market.

Furthermore, the provisions of the Draft NPL Act stipulating increased supervision, such as risk assessment, borrower financial evaluation, anti-money laundering protocols, and other supervisory actions that can be taken by the KNF, will contribute not only to market fairness but also to market security. By addressing these systemic vulnerabilities, Polish banks will be better prepared to counteract future crises.

Once enacted, the Draft NPL Act will undeniably impact the market. If financial institutions and credit servicing entities are prepared for it, new opportunities for entry into the secondary NPL market will emerge. It will also pave the way for a robust, equitable secondary NPL market in Poland, provided that the balance between regulatory guidance and market adaptability can be maintained.

By Weronika Kapica, Partner, and Milosz Zolich, Student, Schoenherr

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Slovenia’s financing landscape over the past couple of years has been characterized by the expansion and consolidation efforts of Hungary’s OTP banking group, resulting in the market being headed by two comparably large institutional players: NLB and OTP. In fact, consolidation in the banking sector could have easily been the talk of the year had it not been for the increased financing costs fueled by relatively high interest rates combined with volatile energy prices that have been causing headaches for the economy on all levels.

Now that base rates and bank margins are dropping (as a result, banks’ profitability, that has been high, will also drop) and energy prices seem to have stabilized to a certain extent (or we might simply be getting used to the new reality), it will be interesting to see how the market situation will pan out. Will the two Goliaths dominate the floor, or will the other smaller players show some David-esque aspirations? Since most Slovenian banks are stable and highly liquid, this could probably be attempted by introducing newer products or innovative business approaches.

Foreign banks – be it Austrian banks who have their long-lasting presence via their affiliates or engage in cross-border financing or Polish banks who provide acquisition financing – have also played a relevant role and have contributed to the diversity of financial products available.

In any case, banks have been and will likely remain the primary source of financing for businesses, although other sources of financing – at various levels of maturity – are also available.

For example, venture capital investments in Slovenia have not yet become a widespread phenomenon. Start-up support platforms and entrepreneurial incubators are generally in place, but the scope of VC financing and investments is still very low. Similarly, crowdfunding or peer-to-peer lending platforms are trying to gain some traction by offering options for start-ups and SMEs that may struggle to access bank loans or venture capital, but they are still toddlers compared to their counterparts in other jurisdictions.

In contrast, private equity activity is emerging as a significant component of Slovenia’s capital market and financing environment. A few larger players have been present for quite some time now, but several new alternative investment funds have been established in the last year or are being put in place. More are likely to come. Notably, these AIFs are all targeting professional or qualified investors and none of them is specifically aimed at individuals and consumers. Bond or commercial notes placements are also not entirely foreign to the Slovenian market.

On a smaller scale, we have seen one different approach – a public bond issue attempted by a real estate developer aimed also at small investors – but the initial offer was not successful. It seems that the market was not yet ready for such a type of investment and the general public is not yet suitably educated on the concept.

Thus, we hope to see more activity in the direction of consumer-oriented funds, specifically from the larger fund managers, who have both the needed infrastructure in place and also have the knowledge and manpower to tackle the logistics and the regulatory framework.

Education of the wider population in this direction would, in my opinion, also be highly desirable as we need to evolve from the most “traditional” long-term investment (or saving) strategy of individuals – purchasing and renting out one or two residential units. The price of real estate is already ridiculously high and the market will not sustain this approach for much longer.

Toward this, the Slovenian government needs to step up and play a more instrumental role in shaping the financing landscape in 2025 and years to come. Indeed, various initiatives aimed at boosting investment in innovation, research and development, and sustainable projects are put in place, but a sustainable housing policy and investment literacy should also be at the forefront of their goals.

By Blaz Ogorevc, Partner, Selih & Partners

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Aiming to protect consumers from potentially excessive interest rates applied by Romanian non-bank financial institutions (NBFI) and to ensure increased transparency in loan claim assignments, in November 2024, Romania enacted Law 243/2024 on consumer protection regarding the total cost of credit and assignment of claims (Law 243/2024). 

Long debated, this new piece of legislation has undergone significant changes since its draft was first published in February 2022, when it was intended to apply to all types of creditors, including credit institutions. It also faced criticism for alleged constitutional breaches but was found constitutional in August 2024.

Law 243/2024 became applicable on November 11, 2024, giving the market some time to adapt, especially regarding the limitations it imposed on credit costs and interest rates applied by NBFIs.

Interest and Credit Costs Limitation

For consumer mortgage loans granted by NBFIs for real estate investments, the effective annual interest rate (EAR) cannot exceed the interest rate on the lending facility applied by the National Bank of Romania (NBR) on the domestic finance/banking market by more than eight percentage points.

For consumer loans granted by NBFIs, the EAR cannot exceed the NBR’s interest rate on the lending facility by more than 27 percentage points. Exceptionally, in the case of lower-value consumer loans of up to RON 25,000 (approximately EUR 5,000), specific limits have been imposed on the total cost of credit, while the total amount payable by the consumer cannot exceed double the value of the principal.

Impact on Ongoing Loans Granted by NBFIs

The newly introduced limitations apply to ongoing loans granted by NBFIs, which are loans active on the enactment date of Law 243/2024 that have reached maturity and that have delays in payment of no more than 60 days. Consumer loans that are qualified as non-performing under Romanian legislation are excluded from the scope of this law.

Consumers may request a revision of their ongoing loan agreements if the cost limits are exceeded and may seek judicial intervention if necessary.

Once a request for adaptation has been received by an NBFI from a consumer, the creditor has 30 days to revert with a proposal to adjust the contract (by partial reduction and/or write-off of the debt, refinancing, etc.), taking into consideration the financial situation of and the maximum indebtedness level applicable to the debtor.

If the NBFI refuses or fails to respond within 45 days, the consumer may file a court action to obtain the adaptation of the loan agreement.

Impact on Loans Assigned to Third Parties

Loan claims assigned and/or otherwise outsourced by credit institutions to third parties may also be subject to requests for adaptation by consumers. This possibility may create uncertainties in secondary debt trading, where consumer-protection-related risks are particularly important.

Additionally, for claim assignments concluded on or after November 11, 2024, debt recovery entities acting as assignees may only collect from the debtor a total amount (including any expenses related to the recovery of the receivables) that does not exceed the claim certified by the creditor at the date the assignment agreement was concluded.

However, these limitations should not significantly impact the recovery potential of debt recovery entities, as they were already restricted in terms of the interest they can collect. In any case, collection up to the total face value of the receivable seems to be less frequent in the case of assignment of non-performing loans.

Practical Implications for NBFIs and Debt Recovery Entities

According to public information, some of the largest NBFIs in Romania are already implementing voluntary measures and adaptation programs for all ongoing loans, aiming at ensuring compliance with Law 243/2024. It is yet to be seen how these voluntary measures will be received by the impacted consumers and the National Consumer Protection Authority.

The new limitations introduced for debt recovery entities add up to existing restrictions applicable under the consumer protection legislation, with a view to further limiting the maximum amounts these entities may charge and/or collect from consumers.

In addition, the new transparency obligations requiring assignors to provide consumers with supporting documentation related to the assigned claim will likely add further burdens to the assignment notification process.

By Matei Florea, Partner, and Valeria Stropsa, Senior Attorney at Law, Schoenherr

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Private equity funds have become an increasingly popular investment vehicle in Hungary since the late 2010s, currently, the register of the National Bank of Hungary shows more than 165 private equity funds registered in Hungary. Although the availability of specific statistics is limited, based on the partial data, it can be estimated that the total assets of Hungarian private equity funds are roughly around HUF 3 trillion, i.e., close to 4% of the nominal GDP of Hungary.

A well-known key feature of this type of investment entity is that the investors enjoy a relatively high level of privacy, deriving from the long-debated concept of secrecy of investments. The level of such secrecy was traditionally higher in some jurisdictions while very limited in others. The exact level of privacy in Hungary, especially regarding the main investment unit holders, was initially in the grey zone of legislation.

During the years of the sudden proliferation of private equity funds, this ambiguity caused headaches for many bank officers responsible for anti-money laundering (AML), customer due diligence, and sanctions screening. The concerns were aggravated by the suspicion that in a large part of private equity funds, the fund manager’s role appeared to be formal, suggesting that the investor who apparently controlled the investment decisions – based on the investment policy or on informal grounds – selected this type of investment tool essentially because of the increased privacy level comparing to those applicable in the case of ordinary company shareholdings.

The practices of banks, who are primarily responsible for sending their clients’ ultimate beneficial owner (UBO) data to the central UBO register, were very divergent in 2021-2022. So much so that, after the launch of the Hungarian central UBO register in 2022, in the case of some private equity funds the register contained the unit holders possessing at least 25% of all investment units, while in the case of others, it indicated the senior manager of the fund manager as the UBO, or contained no information on the UBO at all, keeping the majority investors undisclosed toward the UBO database.

Following some position letters and statements of the affected ministries, it was the tax authority operating the UBO register that ultimately put an end to this uncertainty in mid-2023 by deleting all UBO data from the central register in connection with all private equity funds. It claimed that such entities do not fall under the scope of the act that created the central UBO register. The opponents kept arguing that the unit holders of private equity funds reaching 25% do fall within the beneficial owner definition of the effective EU money laundering directive (AMLD-5).

Now, this situation has substantially changed again from January 1, 2025, when new provisions entered into force inserted in the Hungarian AML Act and in the UBO Register Act. Following this amendment, the referenced acts will explicitly list private investment funds (meaning venture capital funds and private equity funds) for those entities to which UBO-reporting obligations will apply. The new amendment clearly defines those who qualify as beneficial owners of private equity funds: they are primarily those natural persons who directly or indirectly hold together with their close family members at least 25% of the fund’s investment units. Notably, the definition is open to including other types of control and influence as well.

It is however important that, for existing private equity funds (i.e., those registered by January 1, 2025), the obligation to upload UBO data will first apply only in July 2026. This corresponds to the date when the transposition deadline specified by the new AML Regulation adopted by the Council on May 31, 2024, will expire.

It has to be mentioned that, following the judgment of the Court of Justice of the EU passed in a milestone case in late 2022 (joined cases C-37/20 and C-601/20 – WM and Sovim SA v Luxembourg Business Registers), the Hungarian legislator (similarly to several other EU member states) cut off the unconditional publicity of the central UBO-register in 2023. As a result, UBO data of private equity funds uploaded starting from 2025 (or mid-2026) will only be available to the competent authorities and obliged entities. There will also be a possibility for third parties to access this data if they can verify with relevant documentation that they have a legitimate interest in the UBO data for the purposes of anti-money laundering or combatting the financing of terrorism.

By Gyorgy Kiszely, Partner, Nagy & Trocsanyi

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Over the recent years, Greece has taken significant steps in stabilizing its banking sector, owing to several regulatory reforms and a strengthened capital position of its banks. Moody’s revision of the country’s outlook to “positive” in September 2024 is mainly attributed to the recovery of the Greek banking sector and the country’s strong economic performance.

The privatization of the Greek systemic banks marked a key milestone for this positive outcome and a shift toward market-driven governance, stronger operational independence, and improved investor confidence. At this turning point, the country’s alignment with the EU’s climate-neutral economy by 2050 has set the stage for sustainable growth in the banking sector and the wider economy. Additionally, the long-anticipated implementation of the Basel III EU Framework can be instrumental in navigating the Greek banking sector toward a new era of stability and prosperity.

Is Greece Basel III-Ready?

Whilst Basel III introduces stricter standards with respect to capital adequacy, liquidity, and risk management, the Greek banking sector has been progressively aligning with these standards over the past years, demonstrating enhanced resilience and relatively stable capital adequacy. In the first half of 2024, even though banks showed an increase in capital, this was offset by a rise in risk-weighted assets (RWAs). As such, there was a decrease in the Common Equity Tier 1 ratio (CET1) from 15.5% (December 2023) to 15.4%, and the Total Capital Ratio (TCR) remained stable at 18.8%. Although both ratios remain slightly below the EU average (CET1: 15.8% and TCR: 19.9%), liquidity levels are satisfactory, and the impact of Basel III on Greek banks’ capital adequacy ratios is expected to be modest in 2025, even though banks will need to recalibrate their RWA models to ensure compliance with the new standards. However, the management of non-performing loans (NPLs) will remain a critical issue for banks that will require ongoing attention.

NPLs: A Thorn of Grace?

The quality of the banks’ loan portfolios deteriorated slightly in the first months of 2024 mainly because of the addition of certain state-guaranteed loans in the NPL categories, following requirements imposed by the supervisory authorities. This led to an increase in NPL volumes, totaling approximately EUR 0.5 billion. Notwithstanding, the Hercules Asset Protection Scheme (HAPS) has played a crucial role in stabilizing the banking system by facilitating the offloading of NPLs from the banks’ balance sheets through securitization with state guarantees. The Greek government recently extended the scheme (HAPS III), aiming to reduce NPL volumes to EU levels. The extension of the scheme was originally designed to support the so-called “fifth banking pillar,” namely the merger of Attica Bank and Pancretan Bank, by facilitating the securitization of the two banks’ NPL portfolios. It is noted that following the successful merger of the two banks and the upcoming securitization of their NPLs portfolios (valued at approximately EUR 3.7 billion), the merged bank will be able to compete on an equal footing with the four systemic banks, enabling it to serve segments of the Greek market showing increased financing demand, such as small businesses.

At the same time, as the volume and value of NPLs continue to decrease, the secondary market for these loans is expected to grow. A key driver of this growth is the focus on buybacks, where banks reacquire loans that have been successfully restructured, in line with criteria set by the European Central Bank. The risk of these loans, however, becoming non-performing again remains.

A Shift Toward a Green Economy

While the outlook of the Greek banking sector remains positive, its prospects are closely tied to the macroeconomic trajectory of the country, which is further shaped by external factors, such as investments. The country’s green agenda, aligned with the wider EU agenda, plays a crucial role, with initiatives such as the Decarbonization Fund for Greek Islands, aimed at reducing fossil fuel and promoting sustainable energy sources, creating a sea of investment opportunities. An expected increase in investment activity together with regulatory reforms that promote sustainability goals present new opportunities for the banking sector, which is increasingly focusing on green financing and sustainable investments.

Greek banks have started embracing green financing, including financing renewable energy projects and sustainability-linked loans. However, increasing demand for sustainable financing still raises big challenges for banks in terms of ensuring compliance with EU regulations, imposing enhanced compliance and disclosures. Greek banks will need to assess the environmental impact of projects and evaluate their exposure to climate transition risks, particularly in sectors not aligned with carbon reduction goals.

By Marios Bahas, Managing Partner, and George Alexandris, Senior Associate, Bahas, Gramatidis & Partners

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The DORA regulation (Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022 on digital operational resilience for the financial sector) is an essential piece of European legislation aiming to bolster cybersecurity within the EU.

In this effort, it joins the NIS2 directive (Directive (EU) 2022/2555 of the European Parliament and of the Council of 14 December 2022 on measures for a high common level of cybersecurity across the Union). While several types of financial institutions fall under the NIS2 directive, it is primarily DORA that aims specifically at enhancing the operational resilience of the financial sector while establishing a comprehensive framework to ensure that all financial entities regulated under DORA can withstand, respond to, and recover from disruptions and threats related to information and communications technology (ICT).

Supplementing other regulatory frameworks mandated by the EU, DORA (along with NIS2) introduces a unified set of standards for digital operational resilience that regulated financial entities must integrate into their risk management strategies following its applicable date of January 17, 2025.

To Whom Does the Regulation Apply?

To establish a high level of cybersecurity within the EU’s financial system, European legislators decided to include a wide range of financial institutions that will be required – to a greater or lesser extent – to apply the rules and standards introduced by DORA. The list of obliged entities under DORA includes, among others: credit institutions, investment firms, insurance and reinsurance undertakings, payment and electronic money institutions, managers of alternative investment funds, UCITS management companies, crypto-asset service providers, crowdfunding service providers, and ICT third-party service providers.

The entities subject to DORA are recognized as essential to the infrastructure and security of the EU’s financial system. As such, they are expected to maintain a high level of digital operational resilience to protect both the financial markets as well as their participants.

Obligations Under DORA

Entities subject to DORA are expected to comply with a range of requirements imposed by the regulation, including various technical, organizational, and legal measures. The core obligations to be implemented by the respective entities include: (a) ICT risk management, (b) reporting of cybersecurity incidents to competent authorities, including the establishment of communication channels, (c) regular testing of the digital operational resilience, (d) regular training of employees and managers, and (e) management of risks related to third-party service providers (including setting up key contractual provisions with such providers).

In addition to these core obligations, financial institutions may also (under certain conditions) enter into information-sharing arrangements on cyberthreat information and intelligence, which should further solidify security and cyberthreat awareness across the EU through the sharing of experience with various cyberattacks and their practical solutions.

Czech Implementation of the EU Cybersecurity Regulation

The upcoming Czech implementation of the EU’s cybersecurity regulation comprises several specifics. There is currently a new draft act on cybersecurity being discussed in the Czech Parliament that should implement NIS2 into the Czech legislation and replace the current Act on Cybersecurity that has been in force since 2014. On top of various additional requirements and obligations introduced specifically by the Czech legislator, the draft act also includes several financial institutions in addition to those that are already included under the NIS2, namely payment institutions and e-money institutions, provided they meet specific payment volume criteria.

In addition to the draft Act on Cybersecurity, a new draft Act on Digital Finance has also been introduced, aiming at implementing – or, more specifically, further expanding – the DORA regulation as well as the MICA regulation (Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets) into Czech law. The Act on Digital Finance establishes the Czech National Bank (CNB) as the supervisory authority in relation to the cybersecurity of financial institutions under DORA, with the power to impose remedial measures and fines on the institutions under its supervision. Furthermore, as the general supervisory authority responsible for cybersecurity-related matters will be the Czech National Cyber and Information Security Agency (NCISA), it may in practice pose certain supervisory issues, as several types of financial institutions may fall under the supervision of both the NCISA and the CNB.

By Ondrej Havlicek, Partner, and Martin Svoboda, Associate, Schoenherr

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Turkiye has long had one of the lowest non-performing loan (NPL) rates in Europe, but recent years have seen some ups and downs. Between 2017 and 2020, the rate fluctuated between 3.25% and 3.46%. During the pandemic, the rate dropped significantly as borrowers benefited from extended loan payment schedules. Thereafter, the rate rose briefly before falling below the European Union average of 2.27% in 2023. Since the beginning of 2024, however, rising interest rates have pushed the NPL rate back up, to 1.71%. Experts expect the rate to rise to 2.5% by the end of the year, above the EU average and a challenge for borrowers and lenders.

Turkiye has established a clear regulatory framework for dealing with NPLs. Loans are classified as non-performing if they are overdue for more than 90 days or if a borrower has to take out a new loan to cover missed payments. The framework also includes rules for companies that manage and purchase these loans, called asset management companies. These companies follow specific guidelines on how to operate and how to transfer debts.

The establishment of an asset management company in Turkiye requires the approval of the Banking Regulation and Supervision Agency (BRSA) based on certain requirements prescribed by law. Even after initial approval, they must meet additional conditions, including maintaining experienced management and reliable systems for handling their activities. At least three board members must have seven years’ experience in fields such as law, economics, or banking. If an asset management company fails to meet these requirements, it risks losing its license to operate.

The role of asset management companies is carefully regulated. Their main task is to buy troubled loans from banks and other financial institutions and then work to collect payments. They are prohibited from offering loans or engaging in any other business outside this scope. The transfer of loans must follow a fair and transparent process, often involving a public tender where all bidders are treated equally. This ensures that the process is open and competitive.

Financial institutions transferring loans to these companies are required to inform borrowers of the relevant transfer in question. This includes providing details of the asset management company now handling their debt. Before the transfer is finalized, the relevant institution must provide all relevant information about the loans, such as the amount owed, any legal action taken, and the borrower’s contact details. They must also be prepared to respond to any questions or complaints from borrowers pertaining to the transferred loans.

After taking over the loans, asset management companies must notify the borrowers in writing or electronically. This notification explains key details about the debt, including the amount owed, its origin, and what could happen if it is not paid. When first contacting borrowers, firms must provide this information in a clear and simple way. They must also send a written follow-up to the borrower’s address to ensure transparency. If borrowers are unable to pay or fail to reach an agreement with the company, legal action may be taken to recover the debt. Any payments made during this process must be reported to the authorities to ensure proper records are kept.

Some asset management companies use external service providers to assist with debt collection. However, these companies remain fully responsible for ensuring that all actions are compliant. Contracts with third-party service providers must meet regulatory standards and be available for inspection by the authorities if required. The BRSA closely monitors these companies and can suspend or revoke their license if they fail to comply. Asset management companies must also keep the authorities informed of any major changes, such as opening new branches or changing their business structure.

The Turkish NPL market is increasingly attractive as high interest rates and inflation pressure borrowers. These conditions create opportunities for asset management companies to grow their operations. However, strict regulatory compliance is crucial for maintaining market confidence and smooth operations.

Managing non-performing loans can be complex, but Turkiye’s regulatory framework offers a strong foundation for success. By following these rules and communicating clearly with borrowers, asset management companies can thrive while supporting financial stability.

By Alaz Eker Undar, Partner, CMS

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.