Debt finance

In general, lending and borrowing in Slovakia are regulated by the Civil Code (which regulates loans) and by the Commercial Code which regulates credits). Special regulation may apply with respect to special types of loans or credits, such as, for instance, consumer credits.

Lending

Provision of loans or credits does not fall under the supervision of the National Bank of Slovakia, unless a loan or credit comes from financial resources acquired from third persons on the basis of a public call. In these circumstances, and assuming none of the available exemptions apply, a lender will need to be authorized by the National Bank of Slovakia to conduct such business.

Public call means any announcement, offer or recommendation made by any person to collect funds for their own benefit or the benefit of a third party done by any means of publication, including personal contact with several persons, whether with individual persons or simultaneously with multiple parties. An announcement, offer or recommendation made solely through personal contact and to no more than ten persons is not considered a public call.

Housing loans provided to consumers are regulated by the Act on Housing Loans which regulates the information that needs to be provided to the consumer before the conclusion of the contract for a housing loan, the process of credit assessment, the consequences of breaching the obligations of the parties, as well as the obligations of financial agents and financial advisors.

Consumer loans and credits

Consumer loans and credits are subject to the requirements provided in the Act on Consumer Credits and Other Credits and Loans for Consumers which sets the requirements for:

• the information that needs to be provided to the consumer before the conclusion of the contract for a housing loan;
• the information that may be used in advertising consumer loans and credits;
• the process of credit assessment;
• the obligations of the creditors, as well as the information contained in the list of creditors which is maintained by the National Bank of Slovakia;
• the form and content requirements applicable to consumer credit contracts and the consequences of non-compliance;
• the mechanism for calculation of the annual percentage rate; and
• the obligations of the financial agents and financial advisors.

Mortgage loans and municipal loans

Housing loans are loans provided only to consumers for the purposes of purchasing residential property. Mortgage loans are generally provided on the basis of the Act on Banks and may be granted to any party (provided that the conditions stipulated in the Act on Banks are fulfilled). However, a mortgage loan will still be considered a housing loan if provided to consumers for the purposes of purchasing residential property.

Mortgage loans and municipal loans are regulated by the Act on Banks and are subject to a range of regulatory requirements that do not apply to unregulated loans. For example, for regulated mortgage contracts, there are particular requirements for:

• the maturity period;
• the purposes of such mortgage contract; and
• the financing of such mortgage contract.

According to the Act on Banks, a bank may not provide a loan or guarantee liabilities under a loan for:

• any acquisition of shares it issued;
• any acquisition of shares issued by a person who holds a qualified interest in the bank;
• any acquisition of shares issued by legal persons who control or are controlled by persons holding a qualified interest in the bank;
• any acquisition of shares issued by legal persons controlled by the bank; and
• the repayment of another loan granted for any of the above acquisitions of shares or to guarantee liabilities under such a loan.

Borrowing

While borrowers are generally not regulated, it is advisable for borrowers to consider whether either the mortgage or consumer lending regimes apply to their activities, in which case they will benefit from the protections mentioned above.

Lending in Slovakia can be structured in a number of different ways to include a variety of features depending on the commercial needs of the parties.

A loan can either be provided on a bilateral basis (a single lender providing the entire facility) or a syndicated basis (multiple lenders each providing parts of the overall facility).

Syndicated facilities by their nature involve more parties (such as agents who fulfil certain roles for the finance parties), are more highly structured and involve more complex documentation. Larger financings will typically be done on a syndicated basis with one of the syndicates taking the lead in coordinating and arranging the financing.

Loans can be structured to achieve specific objectives, e.g. bank overdraft, discount credit, consumer loan, acceptance credit, loan against securities, bridging loan etc.

Loan durations

The loans may be divided on the basis of their duration into:

• short- and medium-term loans, such as discount credits, consumer loans or acceptance credits; and
• long-term loans, such as mortgages, municipal credits or consumer housing loans.

Loan security

A loan can either be secured, unsecured or guaranteed. For more information, see Giving and taking guarantees and security. 

Loan commitment

A loan can also be:

• committed, meaning that the lender is obliged to provide the loan if certain conditions are fulfilled; or
• uncommitted, meaning that the lender has discretion whether or not to provide the loan.

Loan repayment

A loan can also be repayable on demand, on an amortizing basis (in instalments over the life of the loan) or on a scheduled basis (usually meaning the loan is repayable in full at maturity).

In general, lending to institutional/professional borrowers is subject to less regulatory oversight and is consequently less burdensome from a compliance perspective.

Lending in the context of mortgages and lending to consumers is a regulated activity and requires authorization from the National Bank of Slovakia.

Slovak law recognizes the principle of agency. For instance, it is possible to appoint an agent to act on behalf of other parties. Financial agents are listed in the Register of Financial Agents and Financial Advisors maintained by the National Bank of Slovakia.

Slovak law does not recognize the principle of trust, so it is not possible to appoint a trustee to hold rights and other assets on trust for the lenders or secured parties.

Generally

Loan agreements and other finance documents are subject to general contractual principles. For example, the Slovak courts will not enforce a penalty that does not correspond to the amount of the loan. Lenders therefore, have to be careful about the rate of default interest charged on a loan.

Specific types of lending

Specific to the area of mortgage lending is the issue of whether a lender falls within the recently formed Slovak housing loans regime. The Mortgage Credit Directive, implemented in Slovakia mainly through the Act on Housing Loans and a series of primary and secondary legislation, aims to prevent the irresponsible lending and borrowing practices that were exposed during the global financial crisis.

The Mortgage Credit Directive applies to first and second charge mortgages. It imposes a number of requirements on lenders including the need to:

• conduct affordability tests before lending;
• provide standard information about the mortgage to enable borrowers to compare products; and
• ensure that staff are suitably trained.

Company in crisis

Pursuant to the Commercial Code a company is considered ‘in crisis’ if it is:

• bankrupt (i.e. insolvent or in default); or
• under the threat of bankruptcy (i.e. the ratio of its equity to liabilities is less than the statutory limit ratio of 8:100).

A creditor who grants a loan to a company ‘in crisis’ or until the declaration of bankruptcy or the restructuring permit, may not be able to recover (some or) the full amount of the loan if it was aware of the company's financial position at the time the loan was granted.

Standard form documentation

Bilateral finance transactions are typically documented on bank standard form documentation prepared in-house.

Borrowers should be aware of the potential implications of the EU's Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions. The BRRD has been implemented mainly by the Act on Resolution in the Financial Market.

This regulative framework is applicable to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

The Act on Resolution in the Financial Market which has, among others, implemented also the Article 55 of the BRRD, gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions. Institutions to whom the resolution applies shall include a contractual term in any agreement creating a liability. The creditor or party to the agreement recognizes that the liability may be subject to write-down or conversion, and agrees to be bound by any reduction in the principal or outstanding amount due, or conversion or cancellation that is effected by the exercise of the write-down or conversion power by the resolution authority, provided that such liability is:

• not excluded;
• not a deposit under Slovak law;
• governed by the law of third country; and
• entered into or changed after the date on which the Act on Resolution in the Financial Market became effective (this does not apply to a change of obligation, including an automatic change, that does not affect the fundamental rights and responsibilities of the party of this obligation).