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The madness of loans denominated in Swiss Francs (CHF) seems to have reached a climax, where at least one of the banks involved has given in.
It would seem that Volksbank România, which has a sizeable portfolio of loans denominated in Swiss loans, has made a historic decision, which will affect the entire market.
The bank would allegedly propose to its borrowers that have outstanding loans denominated in Swiss francs their conversion into lei, at an exchange rate of approximately 2.5 lei/CHF, with effective annual interest rate of 5.81% per annum and a discount off the loan balance of 20-35%, according to sources close to the situation. According to them, the bank would begin an advertising campaign on that topic.
Contacted by BURSA, the representatives of Volksbank România have declined to comment the information.
Gheorghe Piperea, the lawyer of approximately 2,500 plaintiffs, who have demanded in court the conversion of loans denominated in Swiss francs says that if this happened, "no banks would have any room to maneuver".
He told us: "Every financial institution that has that kind of loans will be caught in offside and they won't be able to afford it. Banks have to make similar decisions, otherwise Volksbank would make one great deal, by acquiring the loans of the other banks, based on the agreements with the customers of the latter, and converting them according to the new terms".
Gheorghe Piperea told us that he hasn't received any official documentation concerning this decision: "Even though, as a representative of a rather significant number of plaintiffs against Volksbank in this particular case, I should have been the first to receive such an offer, I personally haven't seen any official document on this matter. This fact makes me be rather cautious when it comes to believing this kind of rumors, but if they do come true, I can only be happy that my work which took more than one year has finally yielded results".
• Nicolae Cinteză: "The discount granted by Volksbank may be taxed by the Ministry of Finance"
Volksbank has informed the Central Bank about the offer its intends to send to customers that have borrowed in Swiss francs, according to Nicolae Cinteză, the head of the Oversight Department of the NBR, who said: "The bank has notified us about this decision, but the NBR is not involved in any way, it is not the one making this decision".
Mr. Cinteză thinks that Volksbank's solution is a good one and that the lender has already taken the first step down that path, by increasing its capital.
The head of the Oversight Department of the NBR told us that the solution that Volksbank has come up with is to convert loans taken out in Swiss Francs at the current exchange rate, with an applied discount: "The conversion will be done at the exchange rate valid on the day in question (ed. note: the day of the conversion), while granting a discount off the loan exposure. More specifically, the conversion to lei will be done on the day of the conversion, and then the discount will be applied to the amount of the exposure. Thus, if we divide the remaining exposure by the amount of Swiss francs, we get an exchange rate a bit higher than 2 lei per Swiss Franc".
Nicolae Cinteză claims that a conversion at the historic exchange rate would be illegal and he said: "In this context, I don't know how the lawsuit of Galaţi is going to end (ed. note: the Court of Galaţi has ruled that Volksbank must convert a loan denominated in Swiss Francs it has granted, at the historic exchange rate plus a spread of 10%), because the decision is not backed by any legal provision. See also the recent ruling of the Hungarian Supreme Court of Justice, which stipulates that the conversion procedure can be applied at the exchange rate valid on the day of the conversion, not at the historic one".
According to the NBR official, work has been ongoing on this solution for about two months now, because the option of taxing the discount applied to the remaining balance is being considered.
He told us: "There are now talks under way with the Ministry of Public Finance, because banks can not make a decision on that matter. The question arises whether the lenders should withhold the tax and transfer the amount of the tax to the Ministry of Finance. This is a similar matter to the one of the discount applied by local authorities to the residence tax, discount which isn't taxed".
Luminiţa Ristea, managing partner at consulting firm Nexia International, told us that, in the case of a company, renouncing a loan is considered revenue, and the amount in question is taxed, but in the case of individuals there is no express stipulation in the legislation concerning this particular situation.
The head of the oversight Division of the NBR recently told us, in an interview, that in order to manage the currency risk, European regulations stipulate that the optimal difference between a bank's assets and liabilities denominated in foreign currencies should fall within the -2% / +2% range of a bank's equity. "Failure to stay within this band automatically leads to increased capital requirements. In other words, to a drop in solvency", said Nicolae Cinteză, who stressed that the approval of a draft law that would require the conversion to lei of loans denominated in Swiss Francs would also affect the right of ownership.
"The banks' solution to achieve balance is to increase their assets denominated in foreign currencies, in other words to buy foreign currencies. In this case, we will have pressure on the exchange rate, and the NBR will have to sell foreign currencies", according to Mr. Cinteză, who said: "So far, banks have financed mortgages with foreign loans with long maturities, of 5-6 years, taken out from their parent banks, that have been rolled over, to support the loans with 20-year maturities. Now, there is a wish for these loans to be converted into lei. Where do we get the source of lei to finance the loans that have been granted? There are no long-term sources of lei in Romania. We have a liquidity problem that is a threat to the stability of the banking system.
The conversion of a loan should be the option of the bank, to allow it to constantly have an optimal currency position and prevent it from creating large capital requirements for itself".
• Bankers are refusing to comment on the solution that Volksbank has come up with
The representatives of banking associations have declined to comment on the matter.
Whereas Radu Graţian Gheţea, the president of the Romanian Banking Association, told us that he has no official data on the matter, Bogdan Preda, executive director of Public and Institutional Relations as part of the Council of Romanian Banking Professional Associations has reiterated that banks are already doing conversion operations.
Sources from the banking market told us that such a solution had actually been agreed by several banks that have granted loans denominated in Swiss francs.
Volksbank is one of the lenders that have granted loans denominated in Swiss francs, in 2007-2008, and lately, the ratio of non-performing loans has increased significantly.
Back then, the interest rate charged on loans denominated in Swiss francs (CHF) was 4-5%, and the CHF/RON exchange rate was 2 lei, whereas now, a Swiss franc costs approximately 3.6 lei.
The scandal of loans denominated in Swiss francs has escalated, both domestically and in Europe, as about 2,500 borrowers who took out loans denominated in CHF have taken the banks to court requesting the conversion of the loans.
In spring this year, the European Court of Justice rendered a ruling in the Kasler vs OTP Hungary case. According to the decision of the European Court of Justice, whereas up until now some of the judges thought that the cases which concerned exchange rate differentials pertaining to forex loans were not the concern of the judicial system because that differential was part of loan prices, in the future the courts will be able to render rulings in such cases, and decide whether contractual terms are abusive or not.
In Romania, three legislative initiatives pertaining to loans denominated in foreign currencies taken out between 2007-2008 are currently being debated in the Chamber of Deputies.
Several thousand individuals that have borrowed in Swiss Francs have filed lawsuits against their lenders, which include Volksbank, Raiffeisen, Bancpost, Credit Europe Bank, Piraeus Bank, Millennium Bank.
In June, the first irrevocable ruling of the Romanian courts was rendered, in favor of a Volksbank customer, which meant that the bank was forced to convert to lei the loan denominated in Swiss francs, at the exchange rate valid at the time the loan was granted, with a 10% mark-up.
The bank resorted to an extraordinary avenue of attack, and the Court of Galaţi was set to render a ruling on November 12th.
The ruling rendered by the court of Galaţi could set a precedent in the several thousand ongoing lawsuits on the same matter.
Several members of the Parliament recently told us that banks are exerting enormous pressure against the passing of the legislative drafts initiated on the matter of forex-denominated loans. Apparently banks are exerting pressure in the Parliament through the government as well as through the international financial institutions, as well as by developing draft laws that would favor them.
Bank group Volksbanken AG, which owns Volksbank România, has failed the stress tests conducted by the European Central Bank this year.
Under these circumstances, the group of regional banks that owns Volksbanken AG has agreed to the cost-cutting plan.
The central institution of the Volksbanken group, which includes several tens of regional banks, will transfer its base banking services to another banking group, most probably in the first half of 2015. The remaining operations would be transferred in the coming years to a division without a banking license, meaning it would not be required to fulfill the minimum capital requirements that apply to banks.
The mergers between the 42 banks that own Volksbanken will be completed by 2017 and will lead to the creation of eight new regional banks and three specialized creditors, according to the plan, which has yet to be approved by regulators.
In compliance with the plans approved by the European Union, by the end of 2015, Volksbanken must also sell the 51% stake it holds in its Romanian banking subsidiary.
After the results of the stress tests conducted over a number of 130 European banks were announced, Nicolae Cinteză, the head of the Supervisory Division of the National Bank of Romania told us: "The only bank that is present in Romania as well that could have problems is Volksbanken, but their Romanian subsidiary has a solvency ratio of almost 20%, far above the minimum required threshold".
At the time, the representatives of Volksbank România told us that the stress tests have no impact on the Romanian subsidiary, and they emphasized the fact that following the restructuring of the bank, also sold, among other things, was a portfolio of non-performing loans of 495 million Euros.
"Volksbank România is a heavily capitalized bank, with a solvency ratio of 17.8% (at the end of September 2014), above the minimum requirements set by the Romanian regulations (10%). Another element worth mentioning is the fact that the ECB stress tests did not take into account the measures taken in 2014, which concerned the lowering of the portfolio of non-performing loans or the planned restructuring of the Volksbank Banks Association, which took place after the tests were concluded, December 31st, 2013, respectively", the bank's representatives told us.
Volksbank's Romanian network currently has 130 branches, of which 23 are in Bucharest.
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