THE CENTRAL BANK is going to examine the extent of damage for banks in case they convert Swiss Franc – denominated mortgages to Euro.
Mortgage loans made in Cyprus in Swiss Franc stood at € 1bn. Since January 2015 the Franc sharply appreciated against the Euro, leaving those who have loans in Franc, but incomes in Euro, with larger debts.
Total mortgage and non-mortgage loans in Swiss Francs amount to € 2.6 bn at the end of July 2015.
A spokesperson of the Central Bank speaking before the Parliamentary Committee of Finance which examines the issue, said that it cannot regulate loans given in foreign currency with a directive, stressing that the interest rate is variable and it cannot be imposed retroactively. He also said that according to the Memorandum it cannot interfere with lending rates.
The representative of the Association of Cyprus Banks said that some financial institutions have started providing conversion plans of loans in Swiss Franc in Euro, not at the current price, but at a price to mitigate damage.
He noted that during the period of 2006, following the CB’s circular, banks informed consumers about the currency risk.
He also said that there are documents analysing the risks which bear the signatures of clients.
Affected borrowers speak of a scandal and deception from banks which, as they argued, did not inform them of the currency risks of such loans.
On behalf of the Ministry of Finance Andreas Charalambous said that in the period of 2006 – 2009 lending in foreign currency was granted, adding that there was a low interest rate, but the borrower had the currency risk which could increase the repayment of loans.
He said that these products are not suitable for ordinary citizens, noting that there was a huge appreciation of the Swiss Franc as while during the period of borrowing the EURCHF rate was 1.60 now it is 1.10.
He noted that there are a host of court rulings abroad which received favourable decisions for borrowers who did not receive proper information on currency risk.
He also stressed that in Cyprus there is a CB circular which gives direction to commercial banks as to how to treat such cases.
He said that there are laws qualifying individual handling, adding that if no solution is found to the problem through the financial commissioner, people should go to court.
“We will examine the issue,” he said, “so that consumer protection becomes stronger as regard matters of information.”
The representative of CB, said that during 2006 – 2009 there was a good rate for the Euro and Swiss Franc so many people made low interest loans, stressing that there was no legislation on foreign borrowing at the time, so CB issued a circular to banks.
He stressed that the Croatian government has decided to pay for converting loans from Franc to Euro.
He added that “the CB was watching lending in foreign currency,” adding that “banks held a high level of liquidity, when they granted loans.”
Members of the Finance Committee asked to be informed about the cost to banks in case of a conversion of loans to Euro, calling CB to solve the issue with a circular.
In Greece, a recent landmark case in the Athens court ordered the borrowers to repay Swiss Franc loans at the EURCHF exchange rate that applied when the loan was started, rather than the current rate.
Further reading at Greek court decision for foreign currency loans