BNR expects s better law on debt to equity swap, Governor Isarescu says

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The National Bank of Romania (BNR) expects the MPs will improve the law on debt to equity swap, having in view the recommendations from President Klaus Iohannis and the ones from the European Central Bank, central bank Governor Mugur Isarescu said on Thursday.
“Parliament is the institution making the laws. We expect it to consider these recommendations and to draw a better law, in accordance with its purpose, to protect those who have taken loans for buying a house, not to protect others through this bill,” Isarescu said.
The Chamber of Deputies adopted on November 25, with 233 votes ‘for’, one vote ‘against’ and one abstention, the bill on debt to equity swap. The bill reads that the debtor has the right to pay off the mortgage loan by transmitting to the lender the ownership right over the mortgaged property in favour of the creditor, without further payment. The lower chamber is the decision-making body for the draft law.
Subsequently, the controversial law on debt to equity swap has been sent for re-examination to parliament by President Klaus Iohannis. According to the review request, the ‘debt to equity swap’ principle is an economic and legal one, which equitably induces the risk-sharing between creditor and debtor. Applying this concept is welcome, but should consider adapting it to the specifics of this type of contract, which is on long-term, the request of the President sent to Parliament reads.
The president also said that by establishing procedures aiming to derogate from the Code of Civil Procedure, by quasi-general derogation of the Civil Code, by the absence of express provisions of correlation with other incidental normative acts, as well as using unclear terminology, the law on debt to equity swap as sent to the promulgation may cause difficulties in application and uneven judicial practice.
The National Bank of Romania (BNR) warned that the First House programme will not exist anymore if the law on debt to equity swap is promulgated in its current form. BNR explained that, by law, the state guarantee, with other guarantees, is null by law and the bank cannot recover the loss from the state anymore.
National Bank Vice-governor Bogdan Olteanu recently announced that the central bank asks the President not to promulgate the law and called on him to send it back to Parliament. Olteanu believes that the law should apply on a voluntary basis and not to become compulsory for the banks.
Subsequently, the controversial law on debt to equity swap has been sent for re-examination to parliament by President Klaus Iohannis. According to the review request, the ‘debt to equity swap’ principle is an economic and legal one, which equitably induces the risk-sharing between creditor and debtor. Applying this concept is welcome, but should consider adapting it to the specifics of this type of contract, which is on long-term, the request of the President sent to Parliament reads.
The president also said that by establishing procedures aiming to derogate from the Code of Civil Procedure, by quasi-general derogation of the Civil Code, by the absence of express provisions of correlation with other incidental normative acts, as well as using unclear terminology, the law on debt to equity swap as sent to the promulgation may cause difficulties in application and uneven judicial practice.
The National Bank of Romania (BNR) has warned that the First House programme will not exist anymore if the law on debt to equity swap is promulgated in its current form. BNR explained that, by law, the state guarantee, with other guarantees, is null by law and the bank cannot recover the loss from the state anymore.
The ECB has sent a notice saying that a law with retroactive effect, as the draft bill on debt to equity swap is, risks compromising legal certainty and does not observe the legitimate expectations principle. The ECB also underlines that the document could lead to the deteriorating of foreign investors’ confidence due to an increase in judicial uncertainty and of the country risk.

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