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Banks to take hit on Swiss Franc loans?

The majority of the House Finance Committee wants the Cyprus banks to take a hit of around €170 million on €1 billion of Swiss Franc housing loans despite objections raised by the Cyprus Central Bank.

Swiss-National-BankDESPITE objections from the Cyprus Central Bank, the majority of members of the House Finance Committee want legislation to resolve problems created with three thousand accounts, mainly belonging to non-Cypriots, due to the revaluation of the Swiss Franc (CHF).

The issue was discussed yet again in front of the Committee with the Central Bank’s representative, Elena Gregoriades, who warned that such legislation could potentially disrupt the banking system.

The majority of foreign currency loans were granted by the Bank of Cyprus and the Alpha Bank.

According to Mrs Gregoriades, if these loans were converted to Euros at a previous exchange rate, the Bank of Cyprus would have to take on losses of €147 million, the Hellenic Bank €11 million and the Alpha Bank €10 million. (But the Alpha Bank has only calculated its loss on loans granted for primary residences.)

She said that based on data from the Central Bank, the total Swiss Franc loans granted for the purchase of housing amounted to €1.05 billion and affected 3,000 accounts, 40% of which are held by Cyprus residents.

Mrs Gregoriades added that someone who borrowed in Swiss Francs between 2008 and 2010 had suffered a loss of between 30% and 40% at the current exchange rate.

Member of the Committee considered the Central Bank report to be unsatisfactory and were dissatisfied with their explanations – particularly as it failed to propose any solutions to the problem.

Readers' comments

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  • scruffy says:

    I do not agree that there was a big demand for CHF loans. The banks were promoting them and pushing them for reasons that were best known to them. (suspect much higher commission) There is a big difference. I don’t believe that Mr & Mrs Average walked into a bank and asked for a CHF Mortgage.

    I have a Euro mortgage and yes it has worked out well but I did not ask for it. I asked for a Sterling loan. The bank advised me that as Cyprus was now Euro they could not offer a Sterling mortgage (which I found out later to be nonsense) but would be happy to give me a Euro loan although they knew my income was in Sterling.

    Even with my very limited financial knowledge I knew that a difference in currency was not a good idea.
    Fortunately, I knew historically that the Euro had never been, and was unlikely to be in the future, stronger than the pound.

    The point is though that had I been wrong I could well have been in the dire situations some have found themselves.
    The bank have a duty to ensure that their staff are qualified enough to sell the appropriate product given the circumstances of what the client needs and not what the bank wants to sell.

    It’s simply mis-selling.

    I feel confident that those caught up in this will be fully compensated.

  • Steve says:

    Dear Editor, I do sympathise with the ones who were cheated, as many others were cheated by crooked attorneys omitting to do searches for prior mortgages and builders who sold the same property twice – how is that poor guy who used to camp on the pavement outside the Cyprus embassy in London? The Cypriots are smiling, friendly people, but that doesn’t mean all of them are honest. Some of them see British expatriates as colonialists who have more money than they deserve. The British have a rare quality – the ability to forgive and forget, but don’t imagine for one minute that the same applies to the rest of the world. Seventy years on, the Germans feel they have to take in Arab refugees to atone for the Nazis – how long is that going to go on?

    Did you know that If you google “crooked builder” and leave out “Cyprus”, then most of the hits are about the UK? Cyprus doesn’t figure much in the first one hundred.

  • Steve says:

    I shudder to think what is going to happen. The reason there are so many Swiss Franc mortgages and loans is that there was a big demand for them. I don’t know if any of the borrowers were really interested at the time in the downside risks for the exchange rate, the low interest rates blinded everyone to the dangers. At the same time, remember there were some who decided on Euro mortgages and loans. These fortunate people have seen their capital sum borrowed shrink by over 20% and their interest payments from pounds into Euros have gone down by the same amount for the same reason – the fall in the Euro / GBP exchange rate.

    Have you noticed that these people are not complaining and they are not calling for the banks to be punished for mis-selling or to be forced to provide compensation?

    (Editor’s comment: A number of people have contacted me who took out loans in Cyprus pounds – which were subsequently converted into Swiss Franc loans by the banks. The banks did not ask for their approval or provide them with any details of the loan.

    Other people found that their lawyer had taken out a loan in Swiss Francs on their behalf – some of them didn’t want or need a loan. The first they heard was when the bank came knocking at their door for money.

    At the time these CHF loans were taken out, no other currency was on offer (apart from Japanese Yen).

    These people will get compensation if the banks are forced by the government to revise the exchange rate to the level it was when the loan was granted.

    The banks pushed up interest rates on deposits to attract investors to put their money into the banks. This also caused the banks to increase the interest paid by borrowers on their loans. But as we now know, this tactic by the banks failed with disastrous consequences.)

  • P J says:

    I have a mortgage (in CHF) with Alpha Bank for 6 years now – despite laying down £40K deposit, on an original 130K mortgage, I now owe 200K (that’s with a discount agreed with the bank). The properties worthless (basically), even assuming I could get title deeds (the developers bankrupt).

    Which lender in the UK would lend you 200K for a property that you couldn’t sell, with repayments you have no ability to pay?

    The bank is negligent.

    The Greek and Cypriot economies are basket cases. The Greek/Cypriot banks have 2 ways of refinancing ; more hand-outs from the EU, or foreign recapitalisation of their finances. Foreign investors are easy pickings, we are basically subsidising poor loans and defaults in Greece, by paying more ,on our already , excessive mortgage repayments.

  • Richard says:

    Alpha (or any other bank) doesn’t want to negotiate is my view. Bank across the world have architected complex fiscal structures no layman understands. The ‘regulatory’ bodies are frankly useless. Governments are put in place to ‘manage’ situations arising on their behalf (it seems to me) rather than on behalf of citizens.

    Everyone is waking up now to just how every bad it is – and there is soon to be significant unrest if concessions are not made – large ones – and FAST.

    Banks are pretty much the enemy of the people these days. De-mutualisation and wholesale deregulation were the two most significant follies of the last 30-40 years. It’s let the corrupt & unscrupulous loose on society and been allowed to pretty much wreck it.

    These people – as well ensconced in the corridors of ‘power’ as they are – need to realise when people mobilise ‘en-masse’ – they will be facing a backlash of biblical proportions. If I were them – I’d be rather afraid of that – I really would.

  • Steve R says:

    I decided to take on Alpha Bank 2 years ago after not being able to make the repayment on my CHF loan. I offered to pay the original figure of around €650 a month. They told me that it would have to go before the bank committee for restructuring and to make the monthly payment until a decision was made. 2 years later I got a ridiculous offer of restructuring which involved giving me a 30K reduction if I found another funder. As you can imagine nobody would touch it. Who in their right mind would lend money against a property without title deeds which was still in the name of the developer who in turn had a NPL secured against the same development.

    It will be interesting to see what happens after the 1st Jan 2016 after which time I can’t file a counter-claim for mis-selling. Even after making this monthly payment for 2 years the arrears have still reached €10K. I have looked at the statements and it would take an accountant to work these out. I have made it clear to Alpha Bank that I would have to go bankrupt if they gave me no alternative. I do not own any other property in the UK. The ball is in their court.

    If they had carried out some due diligence before they handed out money neither of us would be in this position.

    Do your worse Alpha Bank I cannot stop you

  • AJWC says:

    @Makis, Thank you for some additional comments and facts you have shared.

    I searched thoroughly yesterday through all news bulletins and was left slightly confused.

    None of the articles actually suggest or commented on the next step the lawmakers would take. The statement below, Was this given out in to news feeds or Cypriot newspapers.

    The Cyprus parliament has given an extra 1 week final notice to the Central Bank of Cyprus to provide them with possible help/guidelines/possible solutions for the problem.

    I was left thinking another 6 months until we get any more news, but the above gives me more hope.

    I am really in 2 minds whether to join an action group or go through a local solicitor to lodge a formal complaint before the state bar rule kicks in. Unless I here imminently that they have rolled it over another year.

    However I am of the belief that eventually the banks will have to concede. So paying to join a group or hiring a lawyer privately may be a cost not required, however it is a form of safety net.

    I am confused by the numbers, I thought the cost to the banks would be much worse!

  • Makis says:

    Hi there,

    A lot of people living abroad were asking about the two weeks notice given by the Cyprus parliament to the Central Bank of Cyprus to provide its comments/solution regarding the CHF house loans.

    The Central Bank of Cyprus, which is an “independent authority” when it comes to providing assistance for the interest of Cyprus and its residents but highly dependent when it comes to the instructions/orders given by Mario Draghi (of the European Central bank), has decided that it would not be beneficial for the Cyprus banks to take the hit for the CHF loans and would create additional problems to the banks and their liquidity and survival and blah blah blah..

    The Cyprus parliament has given an extra 1 week final notice to the Central Bank of Cyprus to provide them with possible help/guidelines/possible solutions for the problem.

    All parties besides DHSY, are willing to proceed with a legislation resolving the CHF loan problem, despite the negative attitude of the Central bank.

    This remains to be seen, as the Cyprus parliament has proven time after time that its members are not trustworthy and they always say big words but when it comes to action, they do nothing, so do not keep your hopes too high.

    One last thing I would like to point out, is the fact that the 170 million Euro that is suppose to be the loss of the banks if they agree for CHF loans to be paid at the original exchange rate, IS A LIE.

    It’s a big fat lie.

    As I have mentioned in a previous post in a similar article, the banks have double income from our CHF loans.

    Their profit margin on top of the 1 month libor (which has escalated for no reason whatsoever), PLUS the exchange rate difference of the loan.

    Besides the fact that receiving two different kinds of income from a single loan is illegal (interest and exchange rate difference income), the banks HAVE SECURED THEMSELVES when acquiring the CHF loan (insuring their instalments), they receive your instalment at the current rate and pay their instalment (to the banking institution abroad) at the rate of the date that they had acquired the loan.

    If they agree to receive your instalment at the rate of the date you have acquired the loan, THEY WILL NOT SUFFER ANY LOSS!! They will just LOSE THE EXTRA AND ILLEGAL INCOME THAT THEY ARE RECEIVING RIGHT NOW.

    I’m so pissed off with all these lies.. Hypocrites everywhere..

  • Richard says:

    “Elena Gregoriades, who warned that such legislation could potentially disrupt the banking system.”

    GOOD! The banking system NEEDS ‘disrupting’. It irresponsibly lent €1.05bn and now it needs to make good the damage. I don’t believe for one fraction of a second – the lending institutions did not safely hedge themselves against a rising CHF when they issued the loans.

    On top – when things got rough in 2008/9 Cyprus was one of the few countries that RAISED interest rates – which was a vile predatory thing to do causing hardship and stress to thousands of people. They acted abominably and what you sow – you reap.

    If they take a hit – it’s a long time coming. People with CHF have taken many hits on their wealth, their heath and in the case of one couple who committed suicide due to the stress of it all – their very lives.

  • Gavin says:

    Typical of Alpha Bank still trying to dodge certain areas when it comes to CHF, it needs sorting once and for all.

  • Erica says:

    If they don’t agree to implement this loss and look at the bigger picture to see they are facing a bigger disaster by the 60% which I could say have purchased properties which are most likely in negative equity of approximately the same percentage or even more! They still face the same issue. The bank should cut their losses rather than have a huge collection of repossessed properties that

    1. They won’t sell and

    2. They will make a huge loss bigger than the loss of exchange.

    Wouldn’t it be better for the homeowners to continue their mortgages at the same exchange rate from the onset??? I hope someone with sense can understand this because I don’t think there is anyone in high places that does…

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