Last week, we critically commented on the NBS’s interpretation of the Serbian Foreign Exchange Act with respect to the permissibility of pledge on local receivables as security for claims of foreign creditors against Serbian debtors. As a reminder, NBS negatively answered the question whether resident A may pledge its receivable against resident B as security for the claim of a non-resident C. In its negative answer, NBS did not distinguish between claims under loan agreements and claims under other types of transactions. NBS explained, inter alia, that enforcement of pledge would have the “same economic effects” as the forbidden transfer of local receivable to a non-resident as it would convert a local receivable to a receivable owed to a non-resident, “leading to the increase of Serbia’s foreign debt”.
In reaction to our comment, NBS has helpfully (although in an unnecessarily belligerent tone) clarified that in fact Serbian borrowers may pledge their local receivables as security for their debt to foreign lenders. It confirmed, along the lines of our argument, that such pledge does not impact on the level of Serbia’s foreign debt given that enforcement of pledge proportionately decreases the liability of the resident borrower. This clarification lays to bed the concern that local borrowers would not be able to provide full security package to foreign lenders.
NBS’s reaction is restricted to cross-border loans, which suggests that the institution considers its initial position, that pledge on local receivables is prohibited, valid with respect to other types of foreign creditor’s claims, such as claims under cross-border trade transactions, direct investment or construction works. A further elaboration of the policy reason for such restriction would be welcome given that enforcement of pledge would not result in the increase of foreign debt in these case either.