Nonperforming Loans (NPLs) in thebanking system constituted 16.5 percent of total loans,owing primarily to the corporate sector. The Credit Bureau,maintained by the Association of Serbian Banks, alsodiscloses dramatic increases in corporate and retaildefaults over the past year. NPL resolution and loan lossmitigation is hampered by a still evolving but unevencollateral and enforcement framework that complicatesrestructuring and leads to delays and lower recoveries inexecution procedures. Corporate debt resolution is furthercomplicated by a pattern of corporate misconduct designed tocircumvent a creditor's legitimate enforcement rights.This is particularly acute in response to account blockages.In an effort to survive, business owners frequently engagein a pattern of corporate fraud to avoid their legitimateobligations by creating alter ego or shell companies throughwhich to conduct their ongoing business activities, with allfunds passing through the new legal entity. That entity isfree from debt and can open bank accounts, engage incontracts, and carry on business as usual using thecorporate assets of the prior legal entity under cleverlydisguised lease or contractual use obligations. In mostmodern economies, such practices constitute fraud orfraudulent transfers that can carry stiff penalties,including loss of business privileges. Other reported abusesinclude applying for voluntary dissolution during which theowner or a friendly receiver continues to operate thebusiness for years in an apparent wind-down ofthe business, while ignoring creditor claims.
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