Banks in BiH to Sell Non-Performing Loans to Debt Collectors

One of the IMF conditions, which Serbia has signed and which Bosnia and Herzegovina will likely soon agree to, is that the collection of problem loans must be allowed, through the formation of non-deposit credit institutions.

Namely, banks have so far had enormous problems collecting bad loans, and they will soon be allowed to sell such loans of companies and citizens. Banks in Serbia have so far had the legal possibility to offer loan repayment for companies, but not for citizens.

In the entire region, only in BiH has it not been allowed to buy loans of either companies or citizens. The level of non-performing loans in BiH last year amounted to 1.1 billion euros. Of that, 340 million euros relates to citizens.    

When it comes to bad loans in companies in BiH, they were the largest last year because they were inflated by Bobar and Banka Srpske, which are now in liquidation proceedings. These two banks undoubtedly contributed to such a high amount of non-performing loans in BiH. Citizens of BiH have so far been repaying loans more regularly than the population of all European Union countries. In BiH, debt is also a matter of honor, so loans were repaid with "joint family efforts."

A large number of hard-to-collect loans in BiH have been written off, precisely at the expense of some banks' operations. Incidentally, BiH does not have an institution for declaring personal bankruptcy.

How exactly will these agencies for purchasing non-performing loans operate when it comes to citizen loans? Banks have so far pressured debtors, and forced collection could only be approved by a court and carried out by a court bailiff. In Croatia, the purchase of loans owed by individuals is allowed. Over the past four years, 1.3 billion euros worth of citizen loans have been sold. The largest part relates to mortgage loans, so there will be even more evictions onto the street and far more homes for sale.

In Serbia, every sixth citizen loan is problematic. The hard-to-collect amount is around 540 million euros. However, the largest part concerns corporate debt, so in Serbia the share of bad loans in total debt is about 23 percent. The largest debtors are for housing loans, which were tied to the Swiss franc currency clause. In all countries of the Western Balkans, however, the level of risky loans is falling.    

Finally, in Slovenia, the estimate for this year is that problem loans will amount to 11 percent, down from 11.7 percent. The level of non-performing loans is the same in BiH. In Croatia, it is estimated that the level of bad loans will increase from 16.7 percent this year to 17.5 percent next year. In Montenegro, non-performing loans amount to 15.9 percent, in Macedonia 10.8.

The increase in problem loans in all Western Balkan countries occurred largely due to loans in Swiss francs.