TIRANA, June 29 – Legal changes to the Civil Procedures Code will offer assets placed as collateral for non-performing loans as low as 30 percent of their value, according to a government draft law pending approval by Parliament.
The changes requiring a qualified majority of 84 votes envisage property seized as collateral following default on loans will be sold at 30 percent of their value in the third and final auction in case of lack of interest by bidders in the second auction.
The changes allow bailiffs to negotiate a deal with creditors in case of no interest even in the third auction or continue seizure procedures on other assets held by the debtors.
The legal changes target further reducing the level of non-performing loans, currently at 18 percent, down from a peak level of 25 percent in mid-2014, considered a key barrier that has been keeping lending at moderate negative growth rates for about a year.
“The issue of collateral execution is one of the main factors behind the high level of non-performing loans,” says a report accompanying the bill.
The changes to the Code also envisage the establishment of special sections on trade disputes and bankruptcy with the country’s district courts.
Back in 2013, changes to the Civil Procedure Code reduced the value of collateral by 20 percent in the first auction and by 30 percent in the second auction. This means collateral worth 1,000 euros dropped by 20 percent to Euro 800 in the first auction and by another 30 percent to Euro 560 in the second auction, a drop by 44 percent in total.
The new changes will lower the collateral value to only €300 in case of an asset with an initial €1000 value.
The Albanian government has also drafted a new bankruptcy law, simplifying the existing prolonged procedures and speeding up the approval of reorganization plans which is also expected to have a positive impact on the further reduction of non-performing loans.
“It will incorporate best international practices, simplify the existing framework, allow for expedited approval of reorganization plans, and protect the economic and governance rights of secured and unsecured creditors,” the government says.
“The bankruptcy law, which is still being consulted among state institutions, focuses on debtor companies, not to take them out of the market as bankrupt, but to give them the opportunity to pay off debts and repay creditors,” says Klajdi Mati, the bankruptcy director at the justice ministry.
Lengthy bankruptcy procedures are one of the main concerns for the business community. The average duration of insolvency proceedings in Albania is 2 years while the cost of the proceedings, calculated as a percentage of the estate’s values is estimated at 10 percent, according to the latest Doing Business report published by the World Bank. Albania ranked 42nd out 189 countries in resolving insolvency in the 2016 Doing Business report, losing 2 places from the previous report.
The new law along with the introduction of out-of-court procedures of debt restructuring improving collateral execution, amendments to the Civil Procedure Code to speed foreclosure procedures and debt collection are expected to further reduce non-performing loans and stimulate sluggish credit.
