Banks: We Respect the Laws and Prepare for the Implementation of the Provisions on the Conversion of CHF Loans

Banks are preparing for the implementation and will act in accordance with the amendments to the Law on Credit Institutions (ZOKI) and the Law on Consumer Credit (ZPK) and the deadlines prescribed by these laws, announced by banks that offered loans in Swiss francs (CHF).

The amendments to these two laws come into effect on Wednesday, September 30, and they regulate the conversion of loans linked to švicarski franak into euros. The conversion will be carried out by converting the initially approved principal of the loan denominated in francs into euros at the exchange rate applicable on the day of the loan disbursement, and the initially agreed interest rate in “švicarcima” will be replaced by the interest rate for loans in euros. Based on this calculation, a new repayment plan will be established. Banks will have to deliver conversion calculations to debtors by registered mail within 45 days, and users will then have 30 days to decide whether to accept that proposal. For users who do not accept the conversion, loan repayments will continue under the initially agreed conditions. For them, a fixed exchange rate of 6.39 percent and a fixed interest rate of 3.23 percent will remain in effect until February.

 Banks: we are preparing

– Zagrebačka banka is preparing to enable the conversion and clients will receive all information in a timely manner, they announced from Zaba.

At Privredna banka Zagreb (PBZ), they say that “the bank is preparing for the implementation of the law, and given certain ambiguities, additional interpretation will be needed from the Ministry of Finance.” Raiffeisen Bank Austria (RBA) states that “RBA will respect the amendments to the ZPK and ZOKI and will act in accordance with the amendments within the legally prescribed timeframe.”

– As always, Hypo Alpe-Adria Bank respects positive laws and regulations, operates in accordance with them, and will continue to do so in the future, adhering to all set deadlines.

Sberbank also states that this bank “fully operates in accordance with the laws and regulations of the Republic of Croatia, and will respect the legal obligations and deadlines provided by the amendments to the Law on Credit Institutions and the Law on Consumer Credit.” Erste Bank emphasizes that it will “respect the legal amendments and that the adjustment of our operations, especially communication with clients in this context, will be carried out professionally and qualitatively.” They also state that Erste Bank has a total of just over 10,000 loans linked to the currency clause with Swiss francs. OTP Bank responded that they are “working on the implementation of the solution” and that at this moment they cannot say anything more than that.

In any case, banks that offered loans linked to the Swiss franc, as well as the Croatian Banking Association (HUB), previously assessed the legal amendments regulating the conversion as completely unacceptable, unjustified, and legally unsustainable. Banks and HUB, in fact, advocated for solutions to the problems of those indebted in “Swiss francs” through a proportional sharing of costs between the involved parties, and only for socially vulnerable groups of citizens. During September, while the legal texts were in the process of adoption, HUB emphasized that the provisions proposed by the Government “are contrary to a whole range of constitutional provisions and general legal principles.” The media also mentioned the possibility that banks would file a constitutional complaint, and in mid-September, Reuters reported from banking circles that banks affected by the Government’s conversion plan intend to begin preparations for legal measures against the Government, mentioning the possibility of seeking arbitration from the International Centre for Settlement of Investment Disputes in Washington.

Association Franak for Monitoring the Implementation of the Conversion

The Association Franak announced at the end of last week on its ‘facebook’ page that they sent an inquiry to the Ministry of Finance and the Croatian National Bank (HNB) regarding the supervision of the implementation of the conversion of CHF loans into euros.

– Given that the implementation of the law is left exclusively to the banks regarding the determination of interest rates on EUR loans, we request as representatives of loan users that data on the movements of interest rates for these loans for all banks that will implement this law be made available to us before implementation, states the letter from the Association Franak.

They also request that they be provided with a record of interest rate movements for each month of each year and for each bank individually.

– According to the information we had before the adoption of the law, such data is held by the Ministry of Finance of the Republic of Croatia and the Croatian National Bank, and we request that it be published publicly so that debtors (consumers) can perform control of the calculations that banks will send in accordance with the legal solution in the next 45 days, say from the Association Franak.

According to data from the central bank, the total number of approved CHF housing loan credit parties amounted to 73,700, and excluding the loans repaid in the meantime, by the end of October 2013, there were 55,800 credit parties remaining.

HNB: cost of conversion eight billion kuna

HNB estimated in mid-September that the cost of converting loans linked to the Swiss franc into euros could reach approximately 8 billion kuna, while the first preliminary estimates spoke of 5.5 to 6 billion kuna. The central bank also estimated that the write-off of part of the principal for converted CHF loans could lead to a decline in the international reserves of the Republic of Croatia, and the estimate was that, assuming that banks wanted to immediately restore their foreign exchange position to balance and that they achieve this by purchasing foreign currency on the market, HNB would need to sell foreign exchange reserves to banks in the amount of 0.88 billion euros. If the reserves are reduced by the total amount of the banks’ costs due to the conversion, the loss of reserves could exceed one billion euros, according to HNB estimates.

The central bank also stated that it has both the determination and the instruments to maintain the stability of the exchange rate and the banking system if necessary.

– The Croatian National Bank will monitor what is happening in the market in order to maintain the stability of the exchange rate and satisfactory kuna liquidity, and will intervene in the foreign exchange market by selling foreign currency as needed and based on assessment, and will also use existing monetary policy instruments such as repo operations. The Decision on the registration of mandatory treasury bills of HNB will also be revoked, with an expected effect of around 3.4 billion kuna, and if necessary, consideration will be given to taking other measures, HNB responded on Tuesday to a query about the measures they intend to take to maintain the stability of the exchange rate and kuna liquidity.

The central bank, in fact, announced for tomorrow the holding of a reverse repo auction, through which it intends to increase liquidity in the system and possibly correct market interest rates.