Official Position of Hanfa on Leasing Companies Granting Loans to Employees

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The Croatian Financial Services Supervisory Agency (hereinafter: Hanfa) received an inquiry on February 23, 2021, regarding the interpretation of Article 8, paragraph 5 of the Leasing Act (Official Gazette No. 141/13) in terms of whether a leasing company, independent of the prohibition on granting loans, may grant loans to its employees.

Given that the aforementioned inquiry points to the necessity of promoting, organizing, and supervising measures for the effective functioning of financial markets in terms of harmonizing the conduct of supervisory authorities under Article 2, point 2 of the Act on the Croatian Financial Services Supervisory Agency (Official Gazette No. 140/05 and 12/12), the following action is taken.

Based on Article 15, point 4 of the Act on the Croatian Financial Services Supervisory Agency, Hanfa adopted at the meeting of the Board of Directors held on April 1, 2021,

OFFICIAL POSITION

I. Article 8, paragraphs 1 to 4 of the Leasing Act stipulate that a leasing company may carry out and register in the court register as activities the following operations: financial leasing, operational leasing, and operations that are in direct or indirect connection with leasing operations (such operations are considered the sale and granting of lease and rental of leasing objects returned to the leasing company).

Article 8, paragraph 5 of the Leasing Act stipulates that a leasing company may not approve credits nor grant loans.

Taking into account that the title of Article 8 of the Leasing Act is "registered activities," and the prohibition on granting loans is an integral part of the aforementioned article, it follows that the prohibition on granting loans refers to the prohibition of carrying out the aforementioned activity within the scope of business operations of the leasing company, and the scope of business operations consisting of permitted activities, i.e., registered activities.

The registration of the scope of business in the court register (registered activities) acts as a notice that the company thereby directs to all who may come into contact with it, i.e., it presents itself to third parties in economic traffic (Barbić, Jakša, Company Law, Book One, General Part, Third Revised Edition, Organizator 2008, p. 355.) In other words, a leasing company may not factually carry out the activity of granting loans within its business operations, nor may it present the carrying out of such activities in economic traffic to third parties by registering them in the court register.

Furthermore, from Article 3, paragraph 1, point e) of the Consumer Credit Act (Official Gazette No. 75/09, 112/12, 143/13, 147/13, 09/15, 78/15, 102/15, 52/16), it follows that the Consumer Credit Act recognizes as a special situation the situation when an employer, outside its business operations, grants credit to employees, without interest or at an EAR lower than rates existing on the market, whereby such credit contracts are not offered to the wider public (credit in the sense of a contract in which the creditor grants or promises to grant a consumer credit in the form of deferred payment, loan, or similar financial accommodation).

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II. Taking into account all the aforementioned, Hanfa's opinion is that it is not absolutely prohibited for a leasing company to grant loans to its employees if it does not enter into the business operations of the company (does not represent the performance of unregistered or prohibited activities).

In this regard, a leasing company is obliged to ensure that the granting of loans is not offered to the public (third parties), that it is carried out under financial conditions more lenient than usual market conditions, i.e., under conditions from which it clearly follows that it is not aimed at generating profit by the leasing company, and that the amounts of loans or exposures and risks arising from lending to employees do not endanger the stability and proper fulfillment of obligations of the leasing company in accordance with the obtained approval for work in accordance with the Leasing Act and other relevant regulations concerning leasing companies.

III. Finally, it is noted that a leasing company, depending on the specific circumstances, is obliged to take into account regulations governing the tax treatment of loans granted to employees as well as the matter of international accounting standards (transactions with related parties).

IV. This official position is published on Hanfa's website.

CLASS: 008-02/21-03/01
REFERENCE NUMBER: 326-01-70-72-21-1

Zagreb, April 1, 2021.

CHAIRMAN OF THE BOARD OF DIRECTORS
Dr. sc. Ante Žigman