Banks in Croatia Face Hit After Ruling on Swiss Franc Loans
(Bloomberg) — Banks in Croatia face a potential hit if a ruling by the country’s Supreme Court turns out to have sided with borrowers of Swiss-franc loans in a decade-long legal dispute.
“The enlarged panel of the Supreme Court of the Republic of Croatia issued a decision” in the case, it said in a statement Wednesday without detailing the verdict. “After the decision is written and sent to the parties, the public will be informed of it through a press release.”
The statement confirmed an earlier Bloomberg report that that the court was meeting and might hand down a verdict.
The nature of the ruling will determine whether borrowers who voluntarily converted Swiss franc mortgages and other loans into euro-denominated instruments about a decade ago may seek additional compensation. The association of Swiss-franc borrowers, which represents around 30,000 individuals and provides legal aid and counsel, estimates that sums totaling around €700 million ($814 million) are at stake.
If the ruling sides with the borrowers, it could affect European lenders such as Italy’s UniCredit SpA and Intesa Sanpaolo SpA, as well as Austria’s Erste Group Bank AG and Raiffeisen Bank International AG, which have operations in the country.
It’s generally possible to appeal verdicts at the country’s Constitutional Court.
“The issue of compensation of Swiss-franc borrowers has been resolved by the conversion law in 2015, which placed the Swiss-franc borrowers in the same position as if they had euro-linked loans from the start,” said Tamara Perko, head of the Croatian Banking Association, or HUB. “At the time, the banks bore the entire cost of conversion, which totaled about €1 billion.”
The lobby group includes the domestic subsidiaries of Erste, Intesa, Raiffeisen and UniCredit as members.
The dispute goes back to legislation passed in 2015 that forced banks to allow about $3.4 billion in franc loans to be converted into euros. The action followed a surge in the Swiss currency that saddled borrowers who had taken out franc loans with rising payments. While almost all borrowers converted their debt, many sued the banks for additional compensation.
While the Supreme Court in a landmark case in 2020 ruled that the conversion contracts were valid, individual lawsuits over additional damages continued, with courts delivering varied decisions. Borrowers are demanding more favorable interest rates as well as reimbursement for late payment fees.
Loans denominated in Swiss francs became popular in many parts of Europe in the early 2000s because they initially had lower interest rates. When the global economic crisis hit, the Swiss currency sharply appreciated and borrowers’ monthly payments and outstanding debt balances surged.
Countries such as Poland, Hungary, Croatia and Greece introduced legislation to resolve the issue, and the European Court of Justice has generally ruled in favor of consumers on similar issues.
(Updates with court statement from first paragraph.)
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