Raiffeisen to sue Romania over debt discharge law

By bne IntelliNews August 22, 2016

Raiffeisen Bank will formally notify the Romanian state of its plans to sue over the recently adopted debt discharge law this week and will ask for the law to be amended “so that it no longer threatens the bank’s investments in the country”, economica.net reported on August 19, quoting unofficial sources.

The notification is a necessary step before the initiation of actions in international courts such as the World Bank’s ICSID, based on bilateral treaties signed by the country for the protection of foreign investors. Foreign banks warned last year that they were considering suing the state if the law was enacted.  

Raiffeisen Bank International head PR Christof Danz confirmed to Bursa daily that a letter in this regard has already been sent to the government, but he refused to comment further.

Romanian banks have already challenged the debt discharge bill in local courts and the Constitutional Court is expected to evaluate their claims this autumn. Banks first had to challenge the provisions of the law through ordinary courts, which in turn sent the issues related to the potential conflict of the law with the constitution to the Constitutional Court.

Raiffeisen Bank Romania has built €42.5mn provisions for the negative effects of the debt discharge law, the bank announced in an August 18 press release along with its H1 financial results.

The impact accounts for 1% of the bank’s stock of loans and is larger than the impact of provisioning for other impaired loans. The impact of the provisioning for non-performing loans eased by 19% y/y to €26mn in H1.

President Klaus Iohannis promulgated the controversial debt discharge law for mortgage loans, also known as the datio in solutum law, on April 28. Under the law, mortgage holders can give collateralised property back to banks in exchange for final termination of their contracts with no further penalty. The law applies to past and future contracts, even to contracts where foreclosure has already taken place.

Bankers claim that the bill breaches constitutional provisions and violates “the principle or retroactivity, the principle of predictability, the principle of accessibility of legal provisions, the principle of economic freedom and the principle of the guaranteeing the ownership rights”. The banks also cite the conflict between the bill and the Civil Code and its procedural norms.

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