Croatian banks accept conversion of Swiss franc loans into euros

By bne IntelliNews April 8, 2015

bne IntelliNews -

 

Croatian banks have accepted the government’s proposal to convert loans denominated in Swiss francs into euro-denominated loans, Finance Minister Boris Lalovac said on April 8.

The loans should be converted at the exchange rate on the date on which the loan was approved, Lalovac said in an interview with public broadcaster HRT. He added that talks with banks should continue within a month, to give lenders time to make their calculations.

Croatia was one of the worst affected countries by the Swiss franc loan crisis, which has had an impact on several countries across Southeast and Central Europe. At the end of last year, Swiss franc denominated loans made up 16% of all lending in the country and some 38% of all mortgage loans were denominated in the Swiss currency, according to data from the Croatian central bank.

Resolving the crisis has been a priority for Prime Minister Zoran Milanović’s government, in the run-up to parliamentary elections expected to be scheduled by the end of this year. The ruling Social Democratic Party is already on the defensive after its candidate Ivo Josipovic was defeated in the presidential elections in January.

On January 23, the Croatian parliament approved a government proposal to freeze the exchange rate used to calculate the Croatian kuna value of personal loans taken out in Swiss francs at HRK6.39 for a period of one year. This was the rate immediately before the Swiss central bank announced its surprise decision to abandon its ceiling of CHF1.20 to the euro on January 15. However, the decision offered a solution only for the 12-month period after January.

Udruga Franak, the association representing Croatians holding loans denominated in Swiss francs, demanded a long-term solution that would include converting foreign currency loans into kuna-denominated loans at the exchange and interest rate valid when the loans were taken out.

At a press conference on March 31, the association threatened to stage mass protests in April if Zagreb failed to resolve the issue. “We are going to stage mass protests because without that nothing is likely to change," Udruga Franak coordinator Ivan Kontrec said, Reuters reported.

The Croatian central bank warned earlier this year that the cost of converting the Swiss-franc denominated mortgage loans into kuna at an exchange rate of 6.39 could amount to HRK3.8bn (€493.5mn).

Meanwhile, the government has also been under pressure from the Croatian Banking Association (HUB), which has sought to prevent the financial burden of resolving the crisis falling on its members. The association proposed that Croatians who can no longer afford to pay mortgage loans denominated in Swiss francs might have their properties as well as their debt transferred to the state or the bank. The model would apply only to mortgage holders who are no longer able to pay their installments due to job loss, a considerable reduction in income or loss of working ability. However, Lalovac had described the banks' proposal as worrying, stressing that it was unacceptable to the state.

Government officials reportedly also discussed a model that envisaged the conversion of Swiss franc denominated loans into euro denominated loans with part of the principal being written off. Most of the conversion cost, around HRK3bn of the total cost, would be covered by the state over a 10-year period.

The HUB, however, warned that such a decision could be made only on a voluntary basis, taking into consideration social differences and sharing the costs between banks, the state and debtors.

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