Association Franak: New Evidence That Banks Knew How Toxic the CHF Currency Is

The Association Franak on Tuesday presented what it describes as new/old evidence that banks ‘deliberately and knowingly did not warn consumers about the possible economic consequences of CHF loans. In its statement, they note that the International Monetary Fund has been warning about the risks of the CHF currency clause since 2000, and just before the issuance of the first CHF loans in August 2002, the head of the Foreign Exchange and Cash Trading Department of Erste Bank, Aleksandar Turza, explained on the portal Burza.com.hr the strength and instability of the CHF. The Association Franak considers it Corpus delictum that Erste Bank knew that the exchange rate of the CHF would rise in the future.

The association states that the International Monetary Fund in June 2007, in its report 7/186, warned about the danger of CHF appreciation and specifically pointed out the problems that could occur in Eastern countries where many loans were contracted with a CHF currency clause, and that year saw the largest expansion of such loans in Croatia.

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“Before that, in July 2005, in its report for Austria number 5/249, the IMF also warned about the danger of CHF appreciation, which puts consumer debtors at risk due to rising loan costs, exposes banks to reputational and credit risk, and potential losses due to the inability to collect such loans, and ultimately puts the Government of the Republic of Austria at risk, as the Government could be accused of not warning about the risks and not adequately protecting consumers. It should be emphasized that the first bank to start offering CHF loans in Croatia was a bank from Austria – Erste Bank! Its parent bank certainly knew what the CHF currency clause entailed, but that did not prevent the subsidiary bank from issuing dangerous and toxic CHF loans in the Republic of Croatia.”

Just before the first issuance of CHF loans in Croatia, the head of the Foreign Exchange and Cash Trading Department of Erste Bank, Aleksandar Turza, explained on the portal Burza.com.hr the simultaneous strength and instability of the CHF, which, as he says, is very risky for potential borrowers.

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„In addition to its natural beauty, Switzerland, or more precisely its currency, the franc, is known among investors as a safe haven when storms arise in the seas of global markets and exchanges. A glance into the past will only confirm this. In 1978, during the second oil crisis, the franc strengthened by 28% year-on-year; in 1982, during the South American crisis, the franc strengthened by 20%; in 1987, during the stock market crash, the franc strengthened by 14% compared to the previous year; in 1990, during the Kuwait crisis, the franc strengthened by 12%; in 1995, during the Mexican crisis and the collapse of the USD, the franc strengthened by 10%; in 1998, during the Asian crisis and the collapse of the Long Term Capital Market fund, the franc strengthened by 5%; in 2001, after the terrorist attacks on the USA, the franc strengthened by 9% year-on-year,” wrote Turza.

However, Erste Bank launched CHF currency clause loans the following year, thereby ‘directly endangering thousands of Croatian consumers.’ Erste Bank was followed by other foreign banks, except for HPB.

“This is Corpus delict for our claims! It is evident from history that the CHF is a currency that is not good for lending but is good for stock market speculation. This is proof that banks knew what kind of dangerous currency it was for consumer debtors and that they deliberately marketed such a toxic product without any warnings, without crucial explanations of the significant differences between the euro and the CHF,” claims the Association Franak, which also warns about the ruling of Judge Radovan Dobronić, who explains in the ruling that the IMF warned as early as 2000 about the possibility that the CHF would appreciate less or moderately against the euro, and thus against the kuna, due to the expansion of the eurozone.

Additional evidence in the association’s view includes statements from the then CEO of Zagrebačka Bank, Franjo Luković, that Zaba delayed the introduction of such products in its offer until the last moment precisely because of the risky lending based on the CHF currency clause.

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“Zagrebačka Bank warned about the risks of loans in francs and delayed their introduction, expecting the regulator to ban them, said the CEO of Zaba, Franjo Luković, to Jutarnji list. When that did not happen, the bank introduced them so as not to lose clients.” The Croatian National Bank did not wish to comment on these claims.

“Banks clearly and deliberately marketed risky loans to attract consumers to contract such loans at lower interest rates, knowing that they would later compensate for everything with the rise in the exchange rate and the rise in interest rates – because, at that time, there was still no court ruling that the interest rates changed at the bank’s discretion were unfair and void, so banks contracted changes in interest rates at the bank’s discretion for a whole decade between 2003 and 2013. In other words – they changed the price of loans whenever they wanted and for as much as they wanted, with the blessing of the Croatian National Bank and the inaction of the executive power,” states the Association Franak, which says that it is now up to the Supreme Court of the Republic of Croatia to apply the ruling from the EU Court ruling C-186/16 in a new revision of the franc case and to examine or test both ‘the transparency of the offer and the unfairness of the contracted CHF currency clause in accordance with the requirements of the EU Court, which for the first time that court refused to do, considering that the grammatical clarity of the contracted CHF currency clause was sufficient for its fairness!’