Government Swiss Franc Loan Conversion Policy Jeopardises Public Debt Financing

Zdenko Adrovic, HUB Managing DirectorLPJ Issue 161, 14 December 2015

On 9 December, the banking group Raiffeisen Stajerska announced they had submitted a request to the Croatian Constitutional Court for a constitutionality review of the Consumer Credit Act, thus joining other lenders who already filed similar requests. The Raiffeisen group said the contested legislation has a retroactive application and also violated the constitutional right of non-discrimination by placing foreign creditors in an unfavourable position, as opposed to local banks.

In September, in order to curry favour with voters before the November elections, the SDP-led government proposed and the Sabor adopted amendments to the Consumer Credit Act and the Credit Institutions Act, aimed at helping some 55,000 Croatian citizens cope with rising payments of Swiss franc (CHF) – pegged loans. The legislative changes essentially introduced a forced conversion of all CHF-pegged loans to euro-pegged ones (see LPJs 148 and 151).

According to the Croatian National Bank’s (HNB) preliminary results from 1 December, the banking sector already recorded €589 million in losses, due to the conversion. For instance, Erste Bank was among the banks affected the most, turning semi-annual profits of €12.7 million into a €118.4 million in losses. Regarding loan-holders, according to some estimates, interest rates had decreased for approximately 60% of them; in contrast, those who took out Swiss-pegged loans in the period 2003-2005 had seen their instalments increase, due to interest rates on euro loans being substantially expensive at the time…

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