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No Dull Year in Banking

No Dull Year in Banking

Romania
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The decade that just ended brought significant changes to the banking landscape in Romania. The banks were pushed to restructure their loan portfolios, consumer litigations increased exponentially, the cost of business increased, and Fintech companies started (although timidly) to take a slice of the pie. Populist legislation was enacted to protect consumers years after banking services were contracted. And a wave of acquisitions forced by the increased costs led to changing rankings at the top of the banking sector.

This year came with unexpected challenges, particularly in the form of the well-known COVID-19 virus. Romania applied an emergency status and entered into lock-down from March 16 until May 18, and although some activities have been gradually released, others remain restricted or prohibited.

To alleviate the risks and costs faced by debtors, the Government enacted a legal moratorium for payments owed under credit agreements. Any such debtors could request the application of the moratorium for a period of up to nine months, until the end of 2020. The conditions for the application of the legal moratorium have raised many questions, including, for example, which type of agreements fall under the scope of the new law, what type of creditors are required to comply with the law, what payments may be delayed, and what are the differences in the treatment of certain loans. Many companies and persons affected by the pandemic (or by the lock-down and social distancing measures) have applied to have their debts suspended. In addition, some banks have awarded conventional payment suspensions to clients that did not formally request the application of the moratorium.

Other legislative acts were adopted with the aim of helping small and medium enterprises overcome economic difficulties in the context of the COVID-19 pandemic. A state aid scheme was approved allowing SMEs to benefit from credit facilities for both investment and working capital guaranteed by the Romanian state covering a maximum of 80% of the financed amount (up to RON 10,000,000 for investment loans and RON 5,000,000 for working capital loans (smaller caps may apply depending on the average expenses registered for the working capital over the past two years)). The Ministry of Public Finance is subsidizing 100% of the interest on the above-mentioned loans/credit lines starting from the date the loan was granted and until March 31, 2021. The interest subsidies can also be extended for the subsequent two years (i.e., 2021-2022), but only if the economic growth estimated for this period is below that registered in 2020. Banks are now intensely busy with the approval of credit files for SMEs.

As a result, banks are now supporting their clients with payment moratoria, while at the same time receiving state support in exchange for extending credit to SMEs.

Against this background, we expect that banks may need to consider strengthening the requirements to grant new loans or extend existing loans that are not covered by the state. We also the banks to require a more in-depth analysis regarding risks and mitigants in respect of such loans. Companies active in industries that have thrived or that were not affected during the pandemic will be advantaged. At the same time, we believe that the banks may need to take a closer look at their clients’ activities and projects and anticipate if and where difficulties may appear. This would require a thorough due diligence and understanding of their clients’ business.

The mergers & acquisitions and portfolio acquisitions transactions in the banking sector will likely continue, but we expect banks to act prudently. Targets with more homogeneous products might be in a better position, as they allow for an easier due diligence and assessment.

By Carmen Manuela Peli, Partner, PeliPartners

This Article was originally published in Issue 7.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Peli Partners at a Glance

PeliPartners is a full service business law firm based in Romania.

A team specialising in complex projects that require innovative approaches, the PeliPartners lawyers have a wealth of experience in a variety of fields, including corporate, mergers and acquisitions, financing, competition, infrastructure & concessions, energy, real estate and corporate law – being involved in some of the most important transactions on the Romanian market for the past 20 years.

Areas of practice

Corporate M&A: With a reputation gained in complex transactions across many sectors (such as financial services, healthcare, energy, IT&C and others), the PeliPartners lawyers are regularly called to assist strategic clients, as well as investment funds or entrepreneurs in relation to various corporate projects, including M&A, structuring or restructuring of groups of companies or corporate governance matters. The firm regularly works in cross-border projects and in collaboration with international law firms.

Finance & banking is a strong practice at PeliPartners, whose lawyers advise across various matters, including financing / refinancing, restructuring, performing and non-performing portfolio acquisitions, regulatory. PeliPartners has a well established reputation with banks and debtors alike. The firm is included in the panel of some of the largest banks present in Romania. PeliPartners advises as well on cross-border financing and restructuring transactions.

Competition & Commercial: PeliPartners’ antitrust practice enjoys a fantastic reputation among international and local clients. The firm’s lawyers are thought leaders and have advised in some of the most complex transactions and projects related to this jurisdiction. They advise on investigations, merger clearance procedures, as well as on various compliance matters, helping clients design and implement distribution, franchise and pricing systems and policies. The firm currently assists clients in sectors such as financial services, IT, telecom, retail, healthcare & pharma.

Real Estate & PPP: With a stellar reputation among local and institutional developers and investors, PeliPartners is called to assist in some of the largest transactions or projects on the Romanian market.

Dispute Resolution: This firm’s clients want to be assisted and represented by PeliPartners when disputes arise in relation to their activity. PeliPartners will put together mixed teams of practice experts and litigation lawyers, that can bring an innovative but thorough approach of each matter.

Firm's website: https://pelipartners.com/