The Croatian constitutional court rejected on April 7 a request from local bank to assess the constitutionality of the Swiss franc loan conversion programme, and confirmed that the programme was in accordance with the Adriatic country’s constitution, Reuters reported.
Croatia is under pressure on several fronts regarding the programme, including from the European Commission (EC), whose probe into the programme is ongoing. UniCredit has also filed a lawsuit at the International Center for the Settlement of Investment Disputes in Washington, though this has been criticised by the EC, arguing that the use of bilateral investment protection treaties (BITs) fragments the single market.
In December, the Croatian constitutional court ruled that the Supreme Court’s previous ruling on the Swiss loan conversion programme was not explained sufficiently and the case should be retried. The Supreme Court upheld on May 14, 2015 a prior decision of the High Commercial Court regarding the dispute between the Croatian consumers association and eight banks over loans denominated in Swiss francs. The High Commercial Court had previously ruled in favour of the Croatian consumer association.
“The lenders’ calculation of costs did not take into account positive effects of conversion which improved the banks' lending portfolio, while the banks also got a tax exemption on the basis of conversion," Miroslav Separovic, head of Croatian constitutional cost, said on April 7, according to Reuters.
The Croatian Banking Association (HUB) criticised the constitutional court’s ruling. The association said that enforced conversion was not in line with European Union legislation and it was also not in accordance with international agreements, Reuters also reported. Although the HUB did not comment on the possible further legal actions regarding the programme, its reference to international legislation has been perceived as a signal that it may seek international arbitration, according to Reuters.
Meanwhile, the Croatian central bank continues to hold regular reverse repo actions although it has not received any bids in the last five auctions since March 6. In a total of 75 weekly auctions held between September 30, 2015 and February 27, 2017, the central bank accepted all bids worth of HRK13.7bn. In addition, the HNB released a total of HRK994mn out of nearly HRK3bn planned through four structural repo auctions in 2016.
Loans in Swiss francs became popular in the Adriatic country in the 2000s due to the attractive low interest rates. However, following the Swiss central bank’s surprise decision to abandon its ceiling of CHF1.20 to the euro in January 2015, the 60,000 Croatians with such loans saw the costs of their borrowing soaring.
In September 2015, Croatia's parliament approved the conversion of loans denominated in Swiss francs into euros, with the costs being borne by the banks. The move was likely to cost financial institutions around HRK8bn (€1bn), the central bank has estimated.
Central bank governor Boris Vujcic reiterated in November that the HNB will continue to pursue the expansionary monetary policy of previous years in 2017. In 2016, the expansionary monetary policy was further boosted by structural repo operations, while financing conditions on the domestic market are steadily improving for all sectors, according to Vujcic.
|Croatian Central Bank's Structural Reverse Repo Auctions|
|Bids (HRK mn)||Accepted (HRK mn)||Fixed Repo Rate (%)|
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