Decision on Terms and Method of Calculating the Effective Interest Rate and on the Layout and Content of Forms Handed out to Consumers

RS Official Gazette, Nos 65/2011 and 62/2018 Pursuant to Article 15, paragraph 1 of the Law on the National Bank of Serbia (RS Official Gazette, Nos 72/2003, 55/2004 and 44/2010) and
Article 11, paragraph 7, Article 17, paragraph 9 and Article 25 of the
Financial Services Consumer Protection Law (RS Official Gazette, No 36/2011), the Executive Board of the National Bank of Serbia hereby issues the following DECISION ON TERMS AND METHOD OF CALCULATING THE EFFECTIVE INTEREST RATE AND ON THE LAYOUT AND CONTENT OF FORMS HANDED OUT TO CONSUMERS Basic provisions

1. This Decision sets out in detail the terms and method of
   calculating the effective interest rate, the layout and content of forms in which the offer to the consumer is laid out and the form and content of loan/financial lease repayment schedules and the deposit payment
   schedule, as well as the list of mandatory elements of a loan/financial
   lease/deposit.
2. For the purpose hereof:

1. Consumer means a financial service consumer as defined by the
   law governing the protection of financial service consumers;
2. Discounting means converting all cash flows into present values,
   i.e. all cash receipts and outlays arising from the use of financial services by applying the discount rate;
3. Deposit payment schedule and/or loan/lease repayment schedule
   (hereinafter: leasing) is a table which lists chronologically all cash flows (receipts and outlays) arising from the deposit and/or loan/lease taken and forms an integral part of the deposit and/or loan/lease contract;
4. Down payment/up-front payment in a loan/lease contract means
   placement of funds by the borrower to finance a percentage of the loan/lease. Terms and method of calculating the effective interest rate

3. The effective interest rate shall be a per annum discount rate at
   which all cash flows arising from the use of financial services are converted into present values. It shall be calculated using the trial method and linear interpolation, through the following formula:

2
) 0
100
(1
( / )





  
 d t k k
EKS NNT where:
NNTk - net cash flow, i.e. balance remaining after deducting the consumer’s cash outlays from cash receipts in a given time period k; d/t - sum total (1) of the number of days from the zero period date until 31 December of that year, as a share of the number of days in the zero period year, (2) number of years from the cash flow year being discounted until the zero period year, but excluding these two years, and (3) the number of days from the date of the beginning of the cash flow being discounted, as a share of the number of days in the year of that cash flow from 31 December of the previous year - calculated using the following formulas:
  




  
    




 

( )
( ) ( ( ) 1).12.31.
( ) (0) 1
(0)
(0).12.31. (0)
/ t k dat k yyyy k yyyy k yyyy t yyyy dat d t ( ) 1 ( ).12.31. ( ).01.01. (0) 1 (0).12.31. (0).01.01. t k yyyy k yyyy k t yyyy yyyy       , where dat(0) – zero period date, dat(k) -period date of the cash flow subject to discounting. The effective interest rate shall be disclosed in percentages, with two decimal places and the rounding of the second decimal place, and apply on the calculation date. The effective interest rate shall be equal to or higher than the contracted interest rate. Notwithstanding paragraph 3 of this Section, where the effective interest rate, calculated as set out herein, is lower than the contracted interest rate or cannot be calculated (e.g. in the case that the amount of deposit used as a collateral for the loan is relatively high compared to the loan amount), the bank shall inform the consumer thereof and explain why the effective interest rate is lower and/or why the bank cannot provide an economically sound solution (e.g. where the rate has a negative value or the value cannot be calculated). For the purpose of calculating the effective interest rate, the bank and the lessor shall use the payment and/or repayment schedules stipulated

3 in Sections 14, 15 and 16 of this Decision.
4. Cash flows referred to in Section 3, paragraph 1 herein shall
mean all cash receipts and all cash outlays borne by the consumer arising from the use of loan/lease and/or deposit placement, where time of occurrence is regulated by the contract, except for loans/lease and/or deposits from Sections 5–10 herein, where time of occurrence and cash flow amount shall be determined pursuant to those Sections.
5. For loans/deposits/leases whose elements used in calculation of
the effective interest rate are contracted as variable, the rate shall be calculated using the value of such elements on the date of calculation.
6. For loans where the consumer, pursuant to the contract, decides
on withdrawal dynamics (lines of credit, current account overdrafts, credit cards etc.), the effective interest rate shall be calculated under the assumption that the approved loan will be immediately disbursed in full. For loans where the consumer, pursuant to the contract, decides on withdrawal dynamics, but adheres to limits – amounts and periods of withdrawal as specified in the contract, the effective interest rate shall be calculated under the assumption that the funds will be withdrawn at the earliest date envisaged by the contract, up to the limit set therein.
7. For loans/leases where the contract sets different interest rates
for different withdrawal periods specified in the contract or different disbursement amounts, the effective interest rate shall be calculated under the assumption that the funds will be withdrawn and disbursed at the highest interest rate set by the contract.
8. For loans where the consumer, pursuant to the contract, decides
on the amount of repayment in excess of the minimum amount set by the contract (e.g. credit cards), the effective interest rate shall be calculated under the assumption that the repayment will be equal to the minimum contracted amount.
9. For loans/leases where the contract envisages several possible
repayment dates, the effective interest rate shall be calculated under the assumption that the repayment will be effected at the earliest date set by the contract.

4
10. For sight deposits and loans whose repayment amount and loan
term are not set by the contract, the effective interest rate shall be calculated under the assumption that the deposit and/or loan term is one year and that payment/repayment shall be made in twelve equal monthly instalments.
11. A bank and a lessor shall, in calculating the effective interest rate
in the pre-contract phase (advertising and offering) do due diligence and make an estimate of all the elements used in calculating the rate whose exact amounts are not known at that phase. Notwithstanding paragraph 1 hereof, where the effective interest rate is calculated for advertising purposes, the bank shall not be obliged to assess costs of auxiliary services prerequisite for the conclusion of the loan/lease contract. Layout and content of forms handed out to consumers
12. A bank and a lessor shall provide to the consumer, prior to
concluding a contract on deposit, loan/payment card, lease, current account overdraft and/or opening and handling an account, an offer laid out on the respective form from Annex 1. 12а. A bank and a lessor shall deliver to the consumer the offer from Section 12 herеоf in dinars at a fixed nominal interest rate and/or in case they do not have such product – an offer in dinars at a variable nominal interest rate, unless the consumer requires that the service be offered in the dinar equivalent of a foreign currency and/or in a foreign currency, in accordance with regulations governing foreign exchange operations. If the consumer, in accordance with paragraph 1 hereof, required that he be offered a loan/lease contract at a variable nominal interest rate and/or in a foreign currency or by contracting a currency clause, a bank and/or lessor shall inform the consumer, by delivering the offer from
Section 12 hereof, also about borrowing risks in the appropriate form of
Annex 1a, as follows:
– about the risks of borrowing at a variable nominal interest rate and risks of borrowing in a foreign currency or by contracting a currency clause – in Form RZ-1;

5
– about the risks of borrowing at a variable nominal interest rate (borrowing in dinars) – in Form RZ-2; – about the risks of borrowing in a foreign currency or by contracting a currency clause – in Form RZ-3. 12b. A bank and a lessor shall enable on their websites the calculation of annuities and an overview of the loan/lease repayment
schedule in the event of individual and joint change of the variable
element of the nominal interest rate and the dinar exchange rate at any moment of repayment, and shall set up a link to the part of the NBS website with relevant calculators.
13. A bank and a lessor shall hand out to the consumer, along with
the copy of the concluded contract on deposit/loan, current account overdraft and/or lease, the list of mandatory elements of the contract laid out on the respective form from Annex 2.

A bank and a lessor shall hand out to the consumer, along with a copy of the concluded contract on deposit (except for sight deposit), loan, and/or lease, in addition to the list of mandatory elements of such contract referred in paragraph 1 herein, the payment/repayment
schedule laid out on the respective form of Annex 3.
14. In Annex 3, Form 1a – DEPOSIT PAYMENT SCHEDULE shall
be filled in as follows:

1. column Period shall include the sequential number of the period in
   which a particular cash flow occurred. Zero period shall be the period of the first cash flow or the agreed date of deposit placing, whichever is earlier. The last period shall be the period of the last cash flow;
2. Column Maturity Date shall include the date of occurrence of a
   particular cash flow set by the contract, and/or the assumed date of occurrence of the cash flow where the contract does not set a specific date (with reference to the calendar number of days in a month and 365/366 days in a year);
3. column Deposit Paid shall include the amount of the deposit
   (and/or a portion of the deposit) to be paid in a bank account;
4. column Payments to Client shall include the amounts that the
   bank apportions to the consumer and adds to the deposit (e.g. accrued interest, bonus payments throughout the deposit term or upon its renewal, etc.);

6
5) column Payments Against Deposit shall include other payments
made by the consumer pursuant to the contract that are not added to the deposit (e.g. application processing fee, account maintenance fee etc.);
6) column Other Payments Against Deposit shall include all charges
to the consumer debited against the deposit (e.g. account maintenance fee, tax liabilities etc.);
7) column Deposit Paid shall include the amount of deposit paid out
to the consumer;
8) column Interest Paid shall include the amount of interest paid out
to the consumer;
9) column Other Payments shall include other payments by the bank
to the consumer pursuant to the deposit contract (e.g. payment of the premium on deposit subject to fulfilment of certain conditions and similar payments);
10) column Balance of Deposit shall include the deposit balance in a
particular period;
11) column Description shall include a short description of a cash flow
in a particular period;
12) column Net Cash Flow shall include the cash flow constituting the
difference between the sum total under columns 3, 5 and 6, and the sum total under columns 7, 8 and 9 in a particular period;
13) column Discounted Net Cash Flow shall include the discounted
amount of the net cash flow in column 12, calculated by using the following formula:
( / )
)
100
(1 d t k
EKS NNT 
 , where
NNTk – net cash flow in period k,
EKS – rate that denotes the effective interest rate in the discount factor;
14) field Total in column 13 shall include the sum total of all
discounted net cash flows in particular periods. The sum must be equal to zero.
15. In Annex 3, Form 1b - LOAN REPAYMENT SCHEDULE shall be
filled in as follows:

1. column Period shall include the sequential number of the period in

7 which a particular cash flow occurred. Zero period shall be the period of the first cash flow or the agreed loan availability date, whichever is earlier. The last period shall be the period of the last cash flow;
2) column Maturity Date shall include the date of occurrence of a
particular cash flow set by the contract, and/or the assumed date of occurrence of the cash flow where the contract does not set a specific date (with reference to the calendar number of days in a month and 365/366 days in a year);
3) column Loan Disbursement shall include the amount of loan
and/or tranches to be disbursed on a particular date, excluding the loan down payment;
4) column Other Payments shall include other payments by the bank
to the consumer pursuant to the loan contract (e.g. excess interest payment etc.);
5) column Annuity shall include the contracted loan annuities paid in
a particular period;
6) column Payment of Principal shall include a portion of the principal
from the annuity;
7) column Interest Payment shall include the amount of interest to be
paid from annuity, as well as the interim interest;
8) column Other Payments/Charges shall include payments that a
loan consumer makes pursuant to the loan contract, as follows:
– application processing fee,
– loan approval fee,
– annual loan administration fee,
– fees for unfunded commitments under lines of credit, – loan insurance premium, if prerequisite for the loan, – charges for opening and keeping of account that are prerequisite for loan approval, – other charges arising from auxiliary services that are prerequisite for the loan disbursement, borne by the consumer (e.g. fixed fee for processing the insurance application, fee for issuance of the excerpt from the land registry, real estate and movable property appraisal fee, fee for verifying a mortgage deed, mortgage registration fee, fee for obtaining information from the borrower database etc.);
9) column Balance of Loan shall include the loan balance in a
particular period;
10) column Deposit Cash Flow (collateral) shall include all cash flows
under the deposit placed pursuant to the deposit contract (placement and payment of deposit and interest on deposit), whereby deposit placement and calculated interest on deposit are shown with a plus sign, while

8 payment of deposit and the appertaining interest are shown with a negative sign;
11) column Description shall include a short description of a cash flow
in a particular period;
12) column Net Cash Flow shall include the difference between the
sum total under columns 6, 7, 8 and 10 and the sum total under columns 3 and 4 in a particular period, which may have a plus or minus sign;
13) column Discounted Net Cash Flow shall include the discounted
amount of the net cash flow from column 12, calculated by using the following formula:
( / )
)
100
(1 d t k
EKS NNT 
 , where
NNTk – net cash flow in period k,
EKS – rate that denotes the effective interest rate in the discount factor;
14) field Total in column 13 shall include the sum of all discounted
net cash flows from particular periods. The sum must be equal to zero. Column Other payments/charges (column 8) Form 1b - LOAN REPAYMENT SCHEDULE shall not include:
– charges incurred due to breach of contract provisions (default interest, penalties etc.), – account maintenance charges if the consumer had an account with the bank prior to loan application, – charges arising from purchase of goods, paid in cash or in another way, – postal, telegram, telefax and similar charges, – document certification fee (except for mortgage deed).
16. In Annex 3, Form 1c – LEASE REPAYMENT SCHEDULE shall
be filled in as follows:

1. column Period shall include the sequential number of the period in
   which a particular cash flow occurred, assuming that:
   – lease asset takeover by the consumer - lessee represents his/her cash inflow in the amount of net financing, – zero period represents the period in which the first cash flow

9 occurred,
– cash inflow of the lessor always occurs in the zero period;
2) column Maturity Date shall include the exact maturity date
(according to the calendar number of days in the month and 365/366 days in the year);
3) column Amount of Net Financing shall include the lessor’s cash
inflow, in line with the assumptions from provision 1) of this paragraph;
4) column Rental Instalment shall include the amount of the rental
instalment that the lessee pays to the lessor in a particular period;
5) column Depreciated Value of Lease Asset shall include a part of
the rental instalment in a particular period relating to repayment of the net financing amount - the last period in this column shall also contain the residual value of the lease asset if it has been so envisaged by the lease contract;
6) column Interest shall include a part of the rental instalment in a
particular period relating to interest;
7) column Other Payments shall include payments arising from lease
that the lessee makes pursuant to the lease contract, as follows:
– approval fee (application processing), – value added tax calculated on approval charges (application processing), – value added tax calculated on interest portion of the rental instalment, – interim interest costs, – value added tax calculated on interim interest costs, – fee for entry of the lease contract in the financial lease register plus the value added tax, – lease asset repurchase option fee, – insurance premium, if insurance is prerequisite for leasing, – other charges incurred in leasing (e.g. fee for obtaining information from the borrower database etc.);
8) column Non-Depreciated Value of Lease Asset shall include the
unpaid part of the net financing amount;
9) column Description shall include a short description of a cash flow
in a particular period;
10) column Net Cash Flow shall include the cash flow constituting the
difference between the sum total under columns 5, 6 and 7, and column 3 in a particular period;
11) column Discounted Net Cash Flow shall include the discounted
amount of net cash flow from column 10, calculated by using the following formula:

10
( / )
)
100
(1 d t k
EKS NNT 
 , where
NNTk – net cash flow in period k,
EKS – rate that denotes the effective interest rate in the discount factor;
12) field Total in column 11 shall include the sum of all discounted
net cash flows in particular periods. The sum must be equal to zero. Column Other payments/charges (column 7) Form 1c – LEASE REPAYMENT SCHEDULE shall not include:
– charges incurred due to breach of contract provisions (default interest, penalties etc.), – postal, telegram, telefax and similar charges, – document certification fee. Annexes
17. The forms referred to herein are enclosed with this Decision and
are integral thereto.
Application of provisions of this Decision to other payment service providers and electronic money issuers 17а. If the consumer showed interest in the contract on loan offered by other payment service provider or electronic money issuer, the provisions of this Decision which apply to banks shall also apply to other payment service providers and electronic money issuers. Final provisions
18. As of the effective date of this Decision, the Decision on the
General Terms of Business Applied by Banks in Relations with Natural Person Clients (RS Official Gazette, No 74/2009) and Guidelines for the Implementation of the Decision on the General Terms of Business Applied by Banks in Relations with Natural Person Clients (RS Official Gazette, No 74/2009) shall cease to be valid.
19. This Decision shall enter into force on the day following its

11 publication in the RS Official Gazette, and shall be applied as of 5 December 2011. NBS Executive Board No 70 Chairman 1 September 2011 of the Executive Board Belgrade of the National Bank of Serbia Governor of the National Bank of Serbia Dr Dejan Šoškić