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CHF loans: Another banking scandal?

Approximately 11,000 borrowers were granted loans denominated in Swiss francs (CHF) by banks in Cyprus and the billion Euro question is whether the banks communicated the risks.

Reckless banks lent millionsSWISS franc denominated loans started blooming in Cyprus in 2006, when the Republic was a candidate for euro area membership. At the time, Swiss franc loans lured in consumers on the premise of a significantly reduced cost of borrowing.

Around 11,000 borrowers will be affected by the Parliamentary committee of Finance should they reach a decision on the CHF loans. Currently borrowers in Swiss franc have seen their loans inflate as a result of the Swiss franc gaining significant strength against the euro. Currently one euro trades at less than 1.1 Swiss francs, whereas some borrowers have borrowed at rates over 1.6.

On September 21st, Members of the Cyprus Parliament asked the Central Bank of Cyprus (CBC) to investigate the cost to local banks to convert mortgages in CHF to euro at their original exchange rates. The CBC has just two weeks to communicate with the banks and provide its opinion. Parliament warned that legislation regarding the case would follow even without an answer from the CBC.

The significant volume of CHF denominated loans in the Cyprus is an indication of the banks’ foreign currency loan selling practices in previous years.

Total Swiss Franc LoansMillions (Euro) ?
Jan-153,621
Feb-153,545
Mar-153,313
Apr-153,288
May-152,810
Jun-152,710
Jul-152,653
Aug-152,580

It’s not too difficult to assess 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. A precedent has already been set for CHF loans in Croatia, Greece and Hungary, where the banks bear the FX hit. These are not the only cases 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 the full extent of the foreign currency hit. The court cases stress that European consumers are protected against dubious selling practices in which the banks were evidently engaged.

However, from our perspective, 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.

In most cases, however, this will require significant negotiating and even the threat of legal action. Most consumers will be unable to resist the banks negotiating tactics. Moreover, as a general rule banks are willing to write-off just 5-12% of the hit, arguing that the borrowers were well aware and informed of the risks. Additionally, the borrowers are required to sign off their rights to any further claims. It should be clear that consumers are protected against mountains of non-transparent lending.

There is no arguing that banking practices regarding foreign currency loans have been dubious in the past. Although an authoritative decision on foreign currency loans should force the banks to accept responsibility it will take a significant toll on an already fragile financial sector.

Dr. George Mountis
Managing Partner
T: +357 22 000060
F: +357 22 000080
E: restructuring@delfipartners.com
W: www.delfipartners.com

Costas Zeniou
Senior Analyst
T: +357 22 000060
F: +357 22 000080
E: restructuring@delfipartners.com
W: www.delfipartners.com

Readers' comments

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  • John says:

    I am also interested to learn about these groups. The editor suggested using google, fair enough but I would appreciate some information from anyone with experience from being in contact with such groups.

    And to Andante, please provide some feedback from the seminar in Birmingham, that would be highly appreciated.

    (Editor’s comment: A number of the groups sent me articles to publish, however I stopped publishing them some time ago. As soon as I published an article by one group, I received an article from another group. And one I recall in particular was clearly knocking another group, playing on the principal’s former career as a professional footballer

    To prevent a turf war being played out in Cyprus Property News, I stopped publishing.

    There are two organisations whose names are in the comments, I suggest you contact them. And as for a report on the forthcoming seminar, I suggest you visit their website.)

  • Marianne says:

    I am very interested in information about the various groups. I know about Maxwell Alves but this is only for People from the UK. I am not from UK. Are there any Groups for People outside UK?

    (Editor’s comment: There are a number of firms in Cyprus that may help. Google search for cyprus swiss lawyer.)

  • Colin says:

    It says in the original article that parliament will make a decision within 2 weeks regardless if they have received a responses from the CBC. Two weeks has now passed and I have heard nothing. Does anyone know what parliaments decision was?

  • Andante says:

    I am going to the Judicare Seminar on 24th October in Birmingham and am happy to report back to anyone wanting information but can’t get there.

  • andy says:

    I joined one of the legal groups this year – Judicare – after speaking with several other law firms.

    They have been really helpful so far, and answered all of my questions to date.

    They have free seminars at Birmingham City FC & also Arsenal FC this month & feel that the people posting on here, that are unsure about what to do or who to speak to – could be assisted by going to one of these events & speaking with the Cypriot barristers Judicare are working with.

    I really think that the ‘strength in numbers’ philosophy is the right route for anyone caught up in this stressful situation.

    Hope this helps.

  • Marianne says:

    I sold my apartment and was told that I would get an 10 percent discount in my loan in BAC. The bank replied after some time that they would only five me 5% discount and today I was told that I would only get 2% discount of my loan.

    Is this normal? If I don’t get the discount the sale will not go through.

    The Apartment was sold very cheap just because of this deal.

    I need an advice I live outside the UK and what to do.

    Is it better to join some Groups and which Group should I join?

    May the loan be settled back to Euro at the rate of 2007? Will the groups win any battle against the banks?

    (Editor’s comment: The banks have a habit of messing people around, they are extremely unprofessional!

    It would be best if you join one of the groups that is fighting the banks as it will help reduce your legal costs. I suggest you contact all of them and then decide which one best suits your needs.)

  • Andante says:

    Janice- this is the first time I have ever seen anyone post this information which is similar to our own experience ref ‘The bank promoted a 2% interest only loan, in CHF’. The bank has always denied this was ever an option.

    I have notes written by our Agent (MRI) that we would be given an INTEREST ONLY loan in CHF – paying back approx £350 per month fixed. It was not until 2 years later, after much pestering, we saw the loan agreement signed without consultation by our now widely discredited lawyer for an Alpha Bank Flexi Loan. This was a repayment loan not interest only. Apart from that, not only was it in CHF (about which we knew was an option but were not warned about the risks) but the payment plan was totally unaffordable even without the exchange rate fluctuations that would later emerge. No account was taken of our ages (approaching retirement) or our ability to pay.

    Seemingly she was able to sign up to ‘any loan, in any currency, at any interest rate’ via our Power Of Attorney which far from protecting our interests served her with an open cheque book to sign up to a loan which presumably gave her a handsome commission. To this day approx. £18,000 of the loan has not been accounted for so we suspect it went her way. One day when our case eventually comes to court we hope to receive full compensation for the worry, stress and the disastrous financial situation created by the reckless and disreputable (and some might consider criminal) lawyer who still practices in Paphos.

  • Janice says:

    It is also quite outrageous to allow this torture by the banks to continue against thousands of innocent people and their families – when it is all so simple: The bank promoted a 2% interest only loan, in CHF. Yes some banks latterly said this was an ‘option’ and you could have euros at 7%, but actually had we all had to paid 5-7% for euros, the property prices would never have gone so high. Basic economics!

    The bank made some affordability checks – the most you can afford is say 800 euros a month – this assuming the rental income whether ‘guaranteed’ or not would be fine. 2-3 years later (after the interest free grace period), the CHF appreciates 50%, so now you have to pay 1200 euros a month. Then the bank increases its margin from 2% to 4.5% so now this compounds the CHF appreciation and the bank expects 2700 euros a month. Then add the delayed capital for the remaining 10 years and now they want 4000 euros a month. Apply this scenario to any business or any individual and we have massive NPL’s, all entirely predictable. Now who’s fault is that?? So quit all the drawn out legal cases, and make the banks pay for their malpractice. Simple!

  • Gary says:

    Hi Makis,

    Thank you for the advice. I completely agree with you. It will be proven that an incorrect product was sold to the housing loan market. In addition, it is clear this was done without proper guidance and advice from the banks. The information on insurance is interesting. I also remember at the time getting a poor exchange rate, compared to the currency market, and thinking my debt had risen about £7,000 immediately.

    My circumstances are very similar to your own. Should I instruct my own lawyer to start proceedings on my behalf or join one of the lawyers representing a larger group?

    (Editor’s comment: My suggestion would be to join one of the larger groups as this will reduce your costs. But speak with each of them before deciding with one to join.)

  • Makis says:

    It looks like i m too optimistic after reading all the comments. I borrowed from LAIKI back in 2008. 1 month libor plus 1.85% (bank’s interest). The total interest is now 1 month libor plus 4.60%, which is outrageous, since my instalment was 600 and is now 1,200 per month after the euro cash against CHF.

    Anyhow, the reason i am optimistic and there’s no way in hell I would come to a deal with the bank before going to court, is because I will win my case in court. It’s simple enough, and I explain my self:

    There is evidence that your lawyers can request from the bank, after filing for a lawsuit. This evidence is the most important part of the lawsuit apart from the fact that the banks did not warn or communicated all the risks or did not have authorized personnel explaining the risks and or insurance from the risks for this investment. Because the house loan is one thing and providing investment services to a client is another. And loans in CHF is definitely an investment service.

    Your lawyer can request from the bank the documents at the date when your loan was approved that prove that the bank has indeed purchased the whole CHF amount at that date. At the same time, the bank, 99% had also purchased insurance towards that CHF amount, which is something that did not give you the option to do. You did not even though you had such an option. What kind of insurance? An insurance that safeguards you in the case the Euro drops by a certain percentage against CHF. It can be +-5% or 10%, it depends. And the insurance cost? 300-400 euros per year.

    If you knew you had such option, wouldn’t you safeguard your self towards such a risk?

    Moreover, many terms of all the CHF loan agreements are abusive limiting the basic rights of the consumer.

    Don’t lose hope. I don’t think the parliament will vote anything that is against the banks, but the court, having all the right evidence will have no other option but to instruct the bank to accept payment in the initial currency rate and also reduce interest rate and reconcile the payments already made so that the balance of your CHF loan is down to where it should be.

    banks have messed up and now they will pay

  • Nicholas says:

    I was told there is a risk just like anything is a risk. The CHF is the safest way as it is strong and hardly loses it value Ever its always steady, hence its the safest risk.This is what I was told by the manager of the Bank Laiki know bank of Cyprus. I trusted that advise, I mean i am not a money man and went with it. Any competent Bank would have also told me that should the euro lose its value my mortgage will cripple because the CHF is so strong. The bank would have known this However this was not communicated.

    I have learnt this from a competent bank and having to explore this predicament the bank has put thousands in. I am not sure what I am going to do yet. they recently offered me 5% to discount my loan if I refinance and sign a paper to state I will not take them to court. I asked for this in writing and they refused. I mean what is this story?

    If I refinance the bank will probably make more money on the refinancing of the Loan. I hope they are instructed to take responsibility and change the loans and paying for it as they messed up by even selling these loans through greed. How was anyone supposed to know you go to a bank and you think you could trust it. As they understand the money market etc. I hope they take responsibility…

    (Editor’s comment: You can bet that the banker who sold you the loan received a commission. And as for the bank refusing to put the offer and conditions in writing to you – it’s outrageous.

    How is anyone ever going to trust the banks in Cyprus if they continue to act in this deceitful way.)

  • Helen says:

    I have taken a case out against BOC for just this situation through a solicitor in Limassol. It is very clear that the BOC did not adequately warn anyone about the real risks of a CHF loan. No one in their right mind would have taken out a mortgage where the overall debt could increase. I have not met or spoken to anyone who knew about this risk.

    Before taking out a legal claim though like Jan I was so upset by the extortionate payments I paid off a large lump sum to reduce the debt payments.

    My solicitor wrote to the bank submitting a claim in December 2014 and they replied that they would be in touch “as soon as possible”. Unsurprisingly, I am still waiting.

    Recently the BOC offered customers a discount to the outstanding loan by 12% if paid off in CHF. I offered BOC a settlement figure for my remaining debt discounting my original loan amount by 12% rather than pursue a costly court case but this was refused outright.

    It is very unfair that where customers have paid off amounts before this offer was made that the 12% cannot be applied retrospectively.

    It seems there is some acknowledgement that the CHF loans were inappropriate but even if there is legislation I just can’t imagine BOC admitting to anything let alone compensating the FX loss.

    It does not help to have been a good customer accepting responsibility for our part of the mortgage deal as Jan and I have done. Once they’ve got money out of us they are not likely to give it back! But we live in hope that this unfair practice will finally be exposed for what it is and we will get some compensation.

  • Steve R says:

    Hi again Nigel

    Thank you for your comment on my post lower down. Regarding your comment (But I see that you have already done a deal with the bank? This may go against any action you may wish to take.).Can I confirm that this was the offer the bank put on the table. I did not accept the offer because of the condition attached which stated that I had to find another lender. Nobody would touch it.

    I have looked at the various groups and it seems that the bank can not start proceedings against you if there is a counterclaim in place. Just a very expensive delaying tactic at that point I assume. As you state time is running out for mortgages taken out before 2009. Having seen the recent cases brought before the courts in Cyprus involving high profile people and observed the outcome I cannot see anybody winning a case against the banks. Its a sorry state but one we must now accept. For all the misery this has caused the thousands of purchasers it will be only a matter of time before somebody commits suicide or ends up in a mental institute. I await with interest for the first person to lose their home in the UK after 1st Jan 2016 and to see what media frenzy it generates.

  • Jan says:

    Right or wrong I paid off my CHF loan in 2012 as I was sick of the high interest rates. The loan was taken out in 2006 and the bank (BoC) executed all sorts of dubious practices, like changing GBP into CHF and then CHF into CYP and charging for both exchanges. Do I have grounds for a claim or does the fact that I have cleared my loan rule this out? Even 5% compensation is worth having these days.

    (Editor’s comment: As you no longer have a loan with the bank you’ll find it extremely difficult/impossible to get any money out of them.)

  • -Steve R says:

    Nigel
    It is my understanding that if you want to submit a claim against the bank for mis-selling you must do this before the end of December this year. After that date the banks can dismiss any claims and are legally within their rights to bring a claim against you which ultimately could lead to you losing your home in the UK.

    This deadline has already been extended once. How can any normal person be expected to take on the Banks. I have spoken to a solicitor who would take on the Bank but could offer no guarantee the he could win my case. If it did get proved against me then I would also have to stand the Bank’s costs plus my own costs. I think its just a case of accepting that you have to find the money or lose everything. According to the Bank, they have done nothing wrong. Can you spread some light on this subject please.

    (Editor’s comment: The implementation of the Statute of Limitation has been put on hold and will come into effect on 31st December 2015 – see Statute of Limitations Law extension.

    So if you took the loan before 31 Dec 2009 you need to decide soon what you’re going to do.

    No lawyer could possibly guarantee the outcome of a court case and, considering the expense involved if you go it alone, I suggest you get in touch with one of the many groups that have been set up to take action against the banks and share the costs. They will scrutinise your loan agreement to see if you have a possible case against the bank.

    But I see that you have already done a deal with the bank? This may go against any action you may wish to take.)

  • Steve R says:

    I did get a reduced offer from Alpha Bank which reduced the loan by about a third. This took it back to the original loan agreement rate. Great stuff you may say, but what about the conditions.

    (1) Did they offer any rebate for the amount of inflated interest charges I have already paid for the last 7 years – NO.

    (2) Would they safeguard any future increases in Swiss Franc or would they change the loan to Euros
    NO

    They killer condition for accepting this reduced figure was that I had to find another bank or lending company to take over the mortgage. Alpha Bank would not give me another mortgage for the reduced, remaining figure. I shopped around and had the door slammed in my face every time. How do you expect us to lend on a property where no Title exists and where the property remains in the hands of the developer, was the reply I got each time.

    THANK YOU ALPHA BANK FOR NOTHING

  • Richard says:

    No – the risks were not communicated.

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

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