MPs want Cen­tral Bank to re­solve CHF loans prob­lem

Financial Mirror (Cyprus) - - FRONT PAGE -

Par­lia­ment told the Cen­tral Bank of Cyprus and the com­mer­cial banks that they have ten days to come up with a so­lu­tion that would al­low the con­ver­sion of Swiss franc loans into eu­ros, oth­er­wise they would adopt leg­is­la­tion of their own.

With hous­ing loans in CHF es­ti­mated at EUR 1.05 bln as at the end of Au­gust, Cen­tral Bank of­fi­cials said such a forced con­ver­sion would ham­per lo­cal banks with a fur­ther EUR 250 mln in losses.

CBC of­fi­cial Elena Gre­go­ri­ades told the par­lia­men­tary Com­mit­tee of Fi­nan­cial and Bud­getary Af­fairs on Mon­day that the Bank of Cyprus would suf­fer losses of EUR 147 mln, Hel­lenic Bank 11 mln and Al­pha Bank Cyprus 10 mln. She added how­ever that Al­pha Bank would suf­fer higher losses as its cal­cu­la­tions con­cerns only pri­mary res­i­dence and not all hous­ing loans.

“The CBC be­lieves that any gov­ern­ment-im­posed rem­edy would yield sig­nif­i­cant losses to the bank­ing in­sti­tu­tions with neg­a­tive ef­fects to fi­nan­cial sta­bil­ity in a pe­riod the banks are re­cov­er­ing from the prob­lems of the past, en­tail­ing a sig­nif­i­cant le­gal but also moral haz­ard,” a doc­u­ment sub­mit­ted to the Com­mit­tee said.

Gre­go­ri­ades also said that in case a law pro­vid­ing the con­ver­sion of only hous­ing law is ap­proved, per­haps other bor­row­ers that re­ceived loans in Swiss franc for con­sumer could ap­peal to the Court against the Re­pub­lic for dis­crim­i­na­tion.

She ad­vised against set­tling the is­sue by law not­ing that the CBC should be given time to con­sult with the banks so that they im­prove their al­ready of­fered so­lu­tions.

How­ever, Com­mit­tee act­ing pres­i­dent An­ge­los Vot­sis said the banks should ab­sorb the losses from the loan con­ver­sion.

Last week, an­a­lysts Ge­orge Moun­tis and Costas Ze­niou of Delfi Part­ners said that around 11,000 bor­row­ers will be af­fected, with the to­tal in CHF de­nom­i­nated loans es­ti­mated at EUR 2.58 bln as at the end of Au­gust, more than dou­ble the Cen­tral Bank es­ti­mates.

How­ever, this fig­ure has been drop­ping steadily, with Jan­uary data sug­gest­ing the to­tal loans stood at EUR 3.62 bln.

Cur­rently, bor­row­ers in Swiss francs have seen their loans in­flate as a re­sult of the Swiss cur­rency gain­ing sig­nif­i­cant strength against the euro. At present, a euro trades at less than 1.1 Swiss francs, whereas some bor­row­ers have bor­rowed at rates above 1.6.

On Septem­ber 21, Mem­bers of Par­lia­ment asked the Cen­tral Bank of Cyprus (CBC) to in­ves­ti­gate the cost to lo­cal banks to con­vert mort­gages in CHF to eu­ros at their orig­i­nal ex­change rates.

“The sig­nif­i­cant vol­ume of CHF de­nom­i­nated loans in the Cyprus is sug­ges­tive of the banks’ for­eign cur­rency loan selling prac­tices in pre­vi­ous years,” Moun­tis and Ze­niou said in a joint ar­ti­cle.

“It’s not too dif­fi­cult to es­ti­mate the full ex­tent of the dam­age. The bil­lion euro ques­tion con­cerns the le­gal­ity of these loans, par­tic­u­larly whether Cypriot banks were trans­par­ent in com­mu­ni­cat­ing risks in­volved. There is al­ready a prece­dent set for CHF loans in Croa­tia, Greece and Hungary, where the banks bear the FX hit.”

“This is not the only case where a Euro­pean court has ruled in favour of the con­sumer when it comes to for­eign de­nom­i­nated loans. A re­cent court de­ci­sion in Athens called for the banks to pay for the full ex­tent of the for­eign cur­rency hit. The court cases stress that Euro­pean con­sumers are pro­tected against du­bi­ous selling prac­tices that banks ev­i­dently en­gaged in.”

Moun­tis and Ze­niou said that “some banks have han­dled the CHF is­sue more re­spon­si­bly than oth­ers. Most banks are will­ing to share at least some of the bur­den of for­eign cur­rency loans and our restruc­tur­ing prac­tice has forced banks to ne­go­ti­ate up to 100% of the for­eign ex­change loss, es­pe­cially in the case of mort­gages or per­sonal loans. Whereas some banks deal with each case in­di­vid­u­ally, oth­ers em­ploy uni­ver­sal poli­cies of 5-12% write-offs. The Greek sub­sidiaries ap­pear to be more ad­vanced at deal­ing with these types of cases, set­tling at much higher write-offs.”

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