Financial Stability Report No1 20 December 2010 - Banka Qendrore ...

Financial Stability ReportNumber 1Table 18. Enforcement of collateral laws in Kosovo (NLIS 2003)NLIS 2003 2005 2010Amount (% of loan recovery) 6 (60%) 5.5 (56.25%)Time (taken in the recovery process) 8 (6 months) 8 (6.25 months)Simplicity 5 5Process FactorsDebtor obstruction 1.67 1.75Preferential creditors 1 1Creditor control 1.67 1Practical experience 1 1.25Corruption 2.17 1.75Institutions 2.17 2Scope factorsScope for collateral 2 1Insolvency process na naInsolvency ranking 1 1Inventory 1.17 1.5Immoveables 2.5 2.25Receiveables 2.5 2.75Notes: Amount represents the percentage of the loan that lenders may expect to recover and ranges from 0 to 10 with higher scores corresponding to higheramounts of recovery; Time represents the time needed expressed in months that lenders may expect to recover a loan and ranges from 0 to 10 with higherscores corresponding to faster recovery; Simplicity represents how simple is the recovery process and takes value of 1, 5 and 10 when the process involvesmajor, moderate and minor complexities. Process and scope factors take value of 1, 2 and 3 when the particular factor represents a minor, moderate and majorproblem in the enforcement process, respectively.In terms of the factors that affect the enforcement process, the major problems were'immovables' and 'receivables'. 18 The score was 2.25 for immovables and 2.75 forreceiveables, which mean that the enforcement process including immovables andreceivables as collateral becomes more complex for recovering claims. Compared to year2005, it is noticed a slight improvement with regard to the execution of immoveablecollateral, while the opposite is true for receiveables. The next highest scores were assignedto factors 'institutions' (2), ‘corruption’ (1.75) and ‘debtor obstruction’ (1.75). The score 2 forinstitutions suggests that the operation of institutions creates problems for the banks,mainly due to insufficient number of judges that slowdown the resolution of defaultedcases. Compared to year 2005, the inefficiency of institutions appears to be e largerimpediment for banks that can be attributed to the expansion of credit portfolio of thebanking sector. That would imply a larger number of cases going to courts, while thenumber of judges appears to be insufficient. The main complaints of respondents were thatcourts lack the expertise and resources to do their job. Therefore, the enforcement processwould be facilitated if specific commercial courts or specialized judges were to deal withcommercial disputes. 19 Corruption of court officials appears to be a moderate problem andcompared to 2005 the score for corruption recorded a slight decline, which means that there18 The scoring for factors takes values of 1, 2 and 3, and the higher the score the more problematic the factor is.19 According to Stanfield, et al. (2004), commercial cases have lower priority compared to criminal and other cases in Kosova. In addition, the number of courtjudges in Prishtina in 1989 (when it had 120,000 inhabitants) was 35, while in 2004 the number of judges was 26 (with an estimated 0.5 million inhabitants).| 87