Bank Liability When Granting Credit: 10 Key Principles of Belgian Banking Law

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A bank that agrees to grant credit to a client is bound by certain obligations. Failure to meet these obligations may give rise to quasi-delictual civil liability.

In the context of so-called “regulated” credit — such as mortgage loans and consumer credit, both of which are governed by Book VII of the Code of Economic Law, as well as loans governed by the Act of 21 December 2013 on the financing of small and medium-sized enterprises — these obligations are generally more stringent and regulated.

Outside these specific frameworks, the banker cannot escape certain general duties, which stem from the general theory of obligations and tort law, as applied to the specific context of credit agreements with banks.

The principles applicable to this matter are regularly reaffirmed by the courts dealing with questions of Belgian banking law. We have identified 10 principles that seem to summarize the issue.

Bank Liability When Granting Credit

1. The liability of a bank when granting or refusing credit must be assessed based on the behavior of a normally prudent, diligent, and reasonable banker placed in the same concrete circumstances;
2. A bank may not grant credit solely on the basis of the collateral provided by the borrower but must make reasonable inquiries into the borrower’s financial situation and repayment capacity. The bank is subject to a duty of investigation, the intensity of which depends on the nature of the client, the complexity of the transaction, and the size of the credit. The assessment of the borrower’s repayment ability must involve obtaining “accurate and complete information about their financial resources.” In a particular case, the Brussels Court of Appeal held that a lender may not grant credit when it can be reasonably certain that the principal debtor will be unable to repay it, thereby speculating that the debt will remain covered by a solvent guarantor;
3. The banker enjoys a degree of discretion when deciding whether or not to grant credit, and the court may only exercise limited oversight. Only if the banker clearly deviates from the behavior of a normally prudent and diligent banker in the same concrete circumstances can fault be found;
4. An incorrect assessment of the chances of success of a project financed by the granted credit is not in itself a fault, provided the risks taken were not unreasonable;
5. Banking activity always involves a degree of risk;
6. In assessing the facts, the court may not take into account events that occurred after the credit was granted and that the banker did not and/or could not have known about at the time — for example, the borrower’s later admission to judicial reorganization proceedings or a subsequent bankruptcy;
7. A bank granting credit may trust the accuracy of the data, information, and documents provided by the loan applicant, unless their inaccuracy is obvious. In another case, a company’s accountant provided the bank with “clearly overly optimistic” projections, but the bank had no reason to doubt them, as the accountant was best placed to assess the company’s financial situation;
8. The expertise of the company director must also be taken into account, as they are best positioned to evaluate the chances of success of their business, due to their superior knowledge of the market compared to the bank;
9. While the banker must verify the information provided, they are not required to conduct a full investigation or audit of the loan applicant;
10. The burden of proof of a banker’s failure — such as granting credit solely based on collateral — lies with the party alleging the failure, typically the borrower in such cases.

In an upcoming article, we will discuss a specific case from the case law regarding a bank’s liability for refusing to grant credit or to extend a loan term.

[1] Brussels, 23 November 2020, unpublished; Ghent, 11 March 2020, unpublished; Ghent, 29 April 2020, unpublished; Antwerp, 8 September 2020, unpublished; Mons, 29 December 2020, unpublished.
[2] For an application, see Brussels, 27 January 2020, unpublished.
[3] Ibidem.
[4] We do not address here the measures related to loan adjustments during the Covid-19 crisis, which were exceptions to this principle.