CONSUMERS who received loans in Swiss francs from banks are protected from exchange rate fluctuations; a lawyer said a day after the Swiss National Bank scrapped the currency’s cap to the euro exchange rate.
As a result, Switzerland’s national currency gained more than 15 per cent towards the euro in two days and was traded today close to 1.01 francs per euro.
A source at Bank of Cyprus, the island’s largest lender in terms of loans, said on condition of anonymity that Swiss franc borrowers would see their monthly instalment increase. A Central Bank of Cyprus official said the supervisory authority was monitoring the situation.
“Consumers who received a loan in a foreign currency from a bank are protected by the ruling of a European Court from exchange rate fluctuations, provided the bank had bought the amount in question and is not exposed to the currency risk,” lawyer Pavlos Angelides said in an interview. “Otherwise, if it receives more than that amount, it achieves a super profit at the consumer’s expense. The court placed it under the protection of the consumer chapter”.
Angelides, who referred to an April 30, 2014, ruling of the European Court of Justice following a complaint filed by two consumers against Hungary’s Jelzálogbank, said that following yesterday’s revaluation of the franc, bank individual clients, not companies, should not necessarily accept any further claims from commercial banks.
The only case in which a consumer who took a loan in a foreign currency may be affected by its revaluation is in cases in which someone buys something and agrees to pay in a foreign currency with an agreed amount in certain instalments, Angelides said.
The Bank of Cyprus source said that the ruling does not apply to Cyprus as Hungary is not a euro area member. Lawyer Angelides countered that “the European Union has common laws for all its members”.
The Cyprus News Agency reported today citing Yiangos Demetriou, who heads the supervision department at the Central Bank of Cyprus that the supervisory authority “cannot do many things and it just monitors the situation and see how things go”.
According to the latest central bank figures, overall lending in Swiss francs in the Cypriot banking system stood at 3.2 billion euros in November.
Time will tell which percentage of this amount will become non-performing, CNA reported citing Demetriou.
The Bank of Cyprus source said the share of the lender, which in March 2013 merged with failed Cyprus Popular Bank, is 30 per cent of overall Swiss franc loans in the banking system.
“Around 20 per cent of them have already been restructured and are now at a marginal point,” the source said adding that Bank of Cyprus expects a significant number of customers who had their loans in franc restructured to ask for another restructuring.
Bank of Cyprus a total of 2,600 clients who took a Swiss franc loan and the average outstanding amount in the case of consumers is 220,000 euros and in the case of companies nearly three times as much, the source said.
The trend in borrowing in Swiss francs emerged in 2006, when Cyprus, which was then candidate for euro area membership.