Intimidation Creates Pressure on the Second Instance Council

The Franak Association today rejected claims that the non-final judgment against eight Croatian banks abolished the currency clause and that such a blow would destabilize the banks, assessing that the aim of such messages is merely to intimidate with potential consequences of the judgment and to create pressure on the second instance council.

Following the first-instance judgment in the collective lawsuit that the banks lost non-finally against the Consumer Association, a ‘significant dust’ has been raised, and in recent days, they say in the Franak Association, denials of the judgment on various grounds could be heard, often accompanied by warnings from so-called independent economic analysts that this is very bad for the banks, which will suddenly incur huge losses, negatively impacting the economy.

In Franak, they conclude that the essence of the first-instance judgment is well-argued, clear, and simple, and that it concerns money that has been illegally taken from Croatian citizens.

– To those who intimidate the public with possible consequences of the court ruling, we remind them that the described seizure of money from citizens has had broader economic consequences for some time, primarily a reduction in personal consumption, which has already significantly reflected on the state budget and employment rate – they say in the association, assessing that those who intimidate the public completely ignore the legal basis and legal reasoning of the judgment.

The most important thesis highlighted was the alleged abolition of the currency clause in Swiss francs, but the association states that this is incorrect because the judgment did not abolish the clause but declared it null and void in existing contracts because consumers were not warned about the risks associated with that currency clause.

Moreover, they say in the association, the clause was declared null and void because consumers were not informed that the Croatian National Bank only protects the exchange rate of the kuna against the euro, as the banks knew that the Swiss franc would rise against other currencies, and as a conscientious business factor, they should never have offered such a risky currency for a period of 20 to 30 years.

The judge, the Franak Association states, supported this with a report from the IMF from the 1990s, which explicitly states that there will be capital pressures on the franc after euroization, which the banks had to know.

As arguments for the judgment, the association also states that the currency clause should be an exception, not a rule, in a country with a low inflation rate, which Croatia is, as it is a highly euroized country.

– In such a country, conscientious banks would never offer other currencies besides the euro as a currency clause, as banks know that all other currencies are very risky in an era of fluctuating exchange rates – the association stated.

Regarding claims that banks will incur an immediate loss of five billion kuna after the judgment becomes final, the association states that this concerns receivables that will decrease by that amount, but they note that this is not about “liquid money” as these receivables are accounted for. Banks will not have to pay anything to debtors based on the judgment, but will have to record an average of 25 percent less principal per client, they say in the association.

They note that loan users, in the event of the judgment being confirmed, will no longer owe banks more money than at the beginning of the loan, but somewhat less, while banks will have lower expected revenues as they will have to convert the principal in francs into kuna principal according to the initial exchange rate and set a fixed interest rate at the level agreed upon at the beginning of the loan. The Franak Association assesses that part of the bank’s profit related to loans with the clause in francs is illegal.

– Over the past eight years, banks have had a constant profit growth ranging from three to five billion kuna, which includes illegal profits based on unlawful contractual provisions. All that will happen is that illegally taken money will be returned to clients, either directly or indirectly. After the judgment becomes final, annuities will be reduced by about 35 percent, and debtors will be able to claim overpaid amounts they paid to banks based on illegal interest rate increases – concludes Franak.