What Will Happen When Kuna Loans or Kuna Savings Are Converted to Euro?

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We are still not sure if on January 1, 2023, we will leave the kuna and enter the eurozone (the inflation criterion could theoretically disrupt plans – the inflation rate must not exceed 1.5 percentage points above the average inflation rate for the three EU countries with the lowest inflation), although a political decision has been made and it seems that inflation will be overlooked. However, even if there is some shift or delay in the date, we should already know how things stand, for example, with interest rates on loans and savings. Because, kuna and euro interest rates are not exactly similar, and they are calculated based on different sources.

So, what will the interest rate practice of banks be once we introduce the euro? What will happen when kuna loans or kuna savings are converted to euro?

From Erste Bank, they respond that, in accordance with the final proposal of the Law on the Introduction of the Euro, if adopted in that form, in contracts where a fixed interest rate is agreed, after the introduction of the euro, the interest rate will remain unchanged. – When it comes to loans with a variable interest rate, for loans where the parameter to which the variable interest rate is agreed is EURIBOR, the interest rate will remain unchanged, while for loans tied to the NRS (national reference rate) for kuna, after the day of the introduction of the euro, the NRS for euro of the corresponding scope and maturity will be used as the parameter for calculating the variable interest rate.

The temporary NRS for the currencies euro, kuna, US dollar, and Swiss franc will be published by the HNB at least 30 days before the day of the introduction of the euro, and banks will conduct an extraordinary calculation of the interest rate for all loan agreements and leasing agreements where the NRS for euro or kuna is applied as the parameter for calculating the variable interest rate, in such a way that the interest rate is calculated as the sum of the last applied fixed margin and the value of the temporary NRS. If for the last reference period the value of the NRS applied to the loan or leasing is greater than the value of the temporary NRS, the fixed margin will remain unchanged, and banks will reduce the interest rate by the absolute amount of the difference between those two values. If for the last reference period the value of the NRS is less than the value of the temporary NRS, banks will reduce the fixed margin by the absolute amount of the difference between those two values, and the interest rate will also remain unchanged – they explain at Erste.

Conversion to euro for citizens is free

When it comes to savings contracts, the introduction of the euro as the national currency does not affect the interest rates of individual savings contracts. This is also confirmed by Raiffeisen Bank. Fixed interest rates on loans for citizens remain unchanged regardless of the conversion of loans to euro. Variable interest rates will change in accordance with changes in the reference interest rate or the parameter agreed upon for the loan (EURIBOR, Treasury bills of the Ministry of Finance, NRS, etc.). – The bank agrees on time deposits with fixed interest rates, and these will not change upon conversion to euro. The current draft of the Law does not allow for the possibility of changing fixed interest rates given the prescribed provision that the interest rate remains unchanged in contracts where a fixed interest rate is agreed after the day of the introduction of the euro.

In the umbrella association, HUB, they add that for variable interest rates, reference rates in kuna will be replaced by the corresponding reference rates in euro denomination (instead of NRS for kuna, NRS for euro of the corresponding scope and maturity will be used, or instead of the TZMF parameter for kuna, TZMF for euro will be used).

From the HNB, they clarify ‘until the end’ – from the day of the introduction of the euro all kuna loans and loans with a currency clause in euros will be considered loans in euros. According to the principle of continuity of contracts and other legal instruments, the introduction of the euro will not affect the validity of existing contracts that specify amounts in the domestic currency. – This, among other things, means that contracts for kuna loans and loans with a currency clause in euros will not necessarily have to be changed due to the transition to the euro as the new official currency. Through the law on the introduction of the euro as the official currency in Croatia, it will be ensured that amounts expressed in kunas in those contracts are automatically converted to amounts in euros at a fixed conversion rate without charge for debtors. The law on the introduction of the euro will also regulate the issue of interest rates. If the loan was agreed upon with a fixed interest rate, after the introduction of the euro, the interest rate will remain unchanged.

On the other hand, if the loan was agreed upon with a variable interest rate, the interest rate will remain variable, and the parameter to which the variable interest rate was agreed upon after the day of the introduction of the euro will remain as it was agreed before the day of the introduction of the euro. In this case, if there is a change in the amount of the parameter to which the variable interest rate is tied, the total interest rate will not be higher than it would have been if the euro had not been introduced. The latter is in accordance with the principle of consumer protection which is also contained in the law on the introduction of the euro, according to which the conversion to euro for citizens is free and the consumer must not be in a financially disadvantaged position compared to what it would have been if the euro had not been introduced – they detail at the HNB.

Thus, fixed interest rates will remain the same, while variable rates will be adjusted, with that adjustment not resulting in an interest rate higher than that which was agreed upon before the introduction of the euro.