Romania Debates Swiss-Franc Loan Conversion to Help Borrowers
(Bloomberg) — Romania discussed converting Swiss-franc loans into lei as fallout from the Alpine nation’s decision to scrap its currency cap reverberates around the continent.
Ministers, bankers and monetary-policy makers gathered in parliament Wednesday in Bucharest to debate help for the 76,000 Romanians who borrowed in francs. Steps may include switching loans into lei at 20 percent above their initial exchange rate, restructuring them, granting tax credits and revamping insolvency laws.
“Any solution we find must be fair to everyone,” lawmaker Eugen Nicolaescu said. “We must harmonize our opinions to design legislation this year that would ease the problem.”
The Swiss National Bank’s shock move threatens to stoke bad debts across eastern Europe as franc borrowers face higher repayments. Romanians, like many Poles and Hungarians, took the loans in the pre-2008 credit boom because interest rates were lower than local currencies. Lenders such as Volksbank Romania SA have begun taking steps to ease borrowers’ pain. Monthly loan costs have jumped as much as 17 percent in the past week.
The leu strengthened 0.1 percent against the euro to 4.5075 as of 4:34 p.m., paring its loss since the Swiss move on Jan. 15 to 0.1 percent, data compiled by Bloomberg show.
The government plans to widen tax credits for borrowers who agree with banks to extend the term of their loans by two years, according to Finance Minister Darius Valcov. The maximum tax deduction will also rise to 240 lei ($62), he said Wednesday.
Lenders’ Offers
“We want to ease loan repayments and the budget impact of such a measure is 0.1 percent of gross domestic product,” Valcov said. Franc loans amounted to about 9.8 billion lei at the end of November, 4.3 percent of total lending, he said.
The central bank plans to calculate a break-even point for the potential conversion of franc loans into lei to avoid significant declines in banks’ solvency, according to Nicolae Cinteza, head of its supervision department. Valcov said he doesn’t oppose the proposal to convert franc loans into lei as long as banks and other parties involved agree with it.
Some lenders have announced measures to help clients avoid foreclosure. OTP Bank Romania SA and Raiffeisen Bank Romania SA reduced interest rates for franc loans to trim monthly payments. Volksbank, which had already offered to convert franc loans into lei or euros at a discount, will freeze the franc-leu exchange rate at the year-end level for the next three months.
“Volksbank’s decision will force others to follow but not all the banks in Romania can support a loss from conversion and in some cases such a measure would push their solvency ratio below the minimum required 10 percent,” Cinteza said Wednesday.
Florin Danescu, deputy head of Romania’s Banking Association, said lenders may challenge some steps to address the issue.
To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Andrew Langley
