Estonia, Financial Services, Loan

The purpose of the memorandum sent to the loan market is to clarify and specify the principles of responsible lending and to emphasize the importance of cooperation, the FSA said.

"We want to emphasize that the position of a borrower who has been injured by a decrease in solvency must not be abused by the lender. Restructuring of loans should make it possible to restore the borrower's solvency and continue to fulfill the contract," Kilvar Kessler, chairman of the management board of the Financial Supervision Authority, said, adding that the borrower must also be honest and cooperative in negotiating changes to the terms of the loan agreements.

The memorandum contains an indicative list of restructuring measures and suggests cases for their use and avoidance -- for example, in general, the use of a natural person's guarantee as collateral in the event of insolvency is not in line with the principle of responsible lending.

In exceptional cases, a natural person guarantee is allowed -- for example, if all other options for loan restructuring would not produce the desired result, if all parties consider this to be the best solution and if the guarantor is able to bear the associated obligations.

The FSA's memorandum is addressed to banks, bank branches, creditors and intermediaries operating in Estonia who, due to the insolvency of borrower debtors, implement measures to restructure loan agreements, including consumer loan agreements.

The FSA will monitor whether lenders follow the guidelines in the letter of recommendation. If necessary, the FSA will react and propose changes to legislation.