The German Federal Court of Justice (Bundesgerichtshof) (BGH) had to decide on the validity of an assignment of credit receivables by a savings bank (Sparkasse) organised as a public law institution (Anstalt des öffentlichen Rechts).

The claimant and his wife entered into two loan agreements with the defendant savings bank in the mid and late 1990s. These loans were secured on two land charges (Grundschulden). When the financial condition of the claimant deteriorated, the savings bank terminated the loans in 2004 and demanded their immediate repayment. In 2005, the defendant sold a credit portfolio in the aggregate amount of EUR30 million which included the loan receivables against the claimant and his wife and assigned, among other things, those loan receivables and the land charges.

The claimant sought a declaratory judgment against the savings bank to the effect that the loan agreement had not been validly terminated, irrespective of the assignment by the savings bank, and that the savings bank continues to be the owner of the land charges which have been created as security for the loans. In particular, the claimant claimed that the assignment was invalid because the savings bank employee(s) (as a public officer(s)), by making available information about the claimant and his wife, their financial condition and the loans to the assignee, had breached private secrecy obligations stipulated by bank secrecy rules in conjunction with section 203(2)(1)No. 1 of the German Criminal Code (Strafgesetzbuch) (StGB).

The court of lower instance dismissed the claim and the claimant then petitioned the BGH on appeal. In its decision of 27 October 2009, the BGH has overruled the appeal of the claimant and held that the defendant was entitled to assign the loan receivables and that the relevant assignment by a savings bank organised as a public law institution neither conflicts with bank secrecy rules nor with section 203(2)(1)No. 1 StGB.

As regards a bank secrecy rules violation, the BGH had already ruled in a landmark decision in 2007 that the validity of an assignment of receivables is not adversely affected by a potential breach of secrecy obligations by a savings bank.

In addition to this earlier decision, the BGH has now held that an assignment of receivables by a savings bank organised as a public law institution does not constitute a breach of private secrecy within the meaning of section 203 StGB.

Since the bank secrecy rules to which private banks and mutual savings bank are bound is not protected by section 203 StGB, as a consequence and for the avoidance of any inconsistencies, the same applies to the bank secrecy of savings banks organised as public law institutions. While, in essence, the BGH has made it clear that German bank secrecy rules are not "secrecy" protected by section 203 StGB, it does, however, remain unclear whether an employee of a savings bank organised as a public law institution can be credited as a public officer within the meaning of section 203 StGB or if a function-related distinction must be drawn.

This decision may have an impact on future non-performing loan (NPL) and securitisation transactions involving public law organised institutions. In the past, the uncertainty about whether an assignment of receivables by a public law organised bank would be considered invalid because of a breach of bank secrecy rules may have been the reason why there have been so few transactions in this sector. Nonetheless, such transactions will still need to be carefully structured so as to avoid damages claims for the violation of (other) bank secrecy and data protection laws.