Cyprus Mail

MPs ask central bank to look into Swiss francs loans debacle

By Elias Hazou

MPs on Monday asked the Central Bank of Cyprus (CBC) to investigate what hit local banks might take from a possible conversion of mortgages, taken out in Swiss francs, into euros, based on the exchange rate applicable before the value of the franc spiked.

Lawmakers gave the CBC two weeks to confer with the banks and come up with answers. But they also warned that, should the lenders be found to be dragging their feet, parliament would step in and legislate the matter.

In January, the Swiss National Bank moved to unpeg the country’s currency from the euro, leading to a sharp revaluation of the Swiss franc.

This was bad news for borrowers in Cyprus who had taken out loans in Swiss francs. As a result, many debtors are complaining that their instalments have gone through the roof and they have been lobbying politicians for a solution.

According to a finance ministry official, the Swiss franc-euro exchange rate back in 2007-2008 was 1.60; today it is around 1.10.

A representative of the debtors association claimed some 11,000 people are affected. In some cases, he added, the debt has doubled after the revaluation of the Swiss franc.

And he charged that banks are now asking borrowers to sign documents writing off five or 10 per cent of the loan, but on condition that they will waive any and all other claims.

The association spoke of a ‘scandal’, arguing that banks at the time did not adequately inform customers of the exchange-rate risks in taking out loans in a foreign currency.

The trend in borrowing in Swiss francs emerged in 2006, when Cyprus was then a candidate for euro area membership.

Those taking out loans in Swiss francs benefited from considerably lower interest rates compared to the then cost of borrowing in euros.

MPs now want the Central Bank to carry out a study assessing the impact on banks from possibly converting the loans in question into euros, according to the exchange rate in force at the time the loans were issued.

Effectively, the exercise would involve calculating the difference between the benefit these debtors reaped from the lower interest rate and their losses today after the sudden exchange rate fluctuation.

DIKO MP and chairman of the House finance committee Nicholas Papadopoulos blamed the banks for not explaining the risks to borrowers.

Unless the banks work it out with their customers, parliament would take the initiative and pass a law protecting consumers from ‘significant’ exchange rate fluctuations.

“Although this wouldn’t be the ideal solution, it’d be like using a sledgehammer to crack a nut,” he conceded.

A CBC official told MPs that mortgages in Swiss francs currently amount to €1bn. Overall lending in Swiss francs in the Cypriot banking system stands at €2.6bn.

She added there is not a lot the Central Bank can do, as these cases involve fixed interest rates, as opposed to floating rates that might be retroactively modified.

Lawyers here cite an April 2014 ruling by the European Court of Justice protecting consumers who received loans in a foreign currency from exchange rate fluctuations.

The ruling was issued after two consumers filed a complaint against Hungary’s Jelzálogbank. Earlier, a Bank of Cyprus source had told the Cyprus Mail that the decision did not automatically apply to Cyprus as Hungary is not a euro area member.

It’s understood the government won’t go along with legislation such as that passed by Croatia days ago, where banks are expected to bear the conversion costs for Swiss-franc loans.

Another suggestion heard in parliament was that the government (the taxpayer) and the banks should split the cost. Again, the Mail understands this is not something the current administration would agree to.

It is more likely that individual consumers here would therefore need to take the banks to court on the grounds that the latter engaged in unfair practices.

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