Swiss Franc beating the 2015 record

More than four and a half years after the explosion of the Swiss franc, (CHF), after repeated protests by debtors, wide scale debates in the Parliament, concerning draft laws on the matter, promises by politicians and banks that they would resolve the situation of CHF borrowers, in the last few days the CHF has jumped over the value it reached on January 15th, 2015.

After the Swiss Franc reached an all-time high of 4.3319 lei on September 20, the CHF continued to rise to 4.3658 lei on September 23rd and 4.3757 on the 25th, and only posted a slight drop on the 26th, to 4.3667 lei, according to data published by the NBR.

It bears reminding that in the first half of 2015, the exchange of the Swiss franc blew up unexpectedly, after the Swiss central bank unexpectedly removed the peg of 1.2 CHF/Euro it had imposed in 2011. In a rather short time frame, the CHF exchange rate more than doubled over the period when the peg was in effect.

Several protests of the debtors affected by the increase of their loan installments, who were asking for the passing of legislation that would allow the conversion to lei of the CHF loans, at the rate they were granted at, or the intervention of banks in order to share the burden created by the rise of the exchange rate. The law for the conversion of loans denominated in Swiss Francs, promoted by ALDE senator Daniel Cătălin Zamfir, was however, declared, unconstitutional. The Romanian Constitutional Court also ruled in the case of the law of Giving in Payment, drawn up by lawyer Gheorghe Piperea, which stipulates that debt would be extinguished once the properties put up as collateral in the bank agreements would be assigned to the bank, and ruled that those contracts need to be rebalanced according to the current reality. If lenders refuse to renegotiate, loan agreements would go to court, where they would be modified by the judge, once the unpredictability factor in the loan agreements is proven, as the Constitutional Court has ruled.

It's not just the Swiss franc that rose lately, but the Euro and the US Dollar as well.

The central bank yesterday posted an exchange rate of 4.7460 lei for one Euro, up 0.21 bani (+0.04%) over the previous quotation, of 4.7439 lei/Euro. The leu has weakened in relation to the US dollar as well, to 4.3418 lei, up 2.86 bani (0.66%) over the quotation of the previous session, of 4.3132 lei.

There are three currencies which are considered safe havens - the Swiss franc, the US dollar, and the Japanese yen -, which generally move together, especially when we are dealing with a global risk aversion, said Adrian Codirlaşu, the president of the CFA, who explained: "We now have aversion again, in the context of the trade war between the US and China, the risk of recession - because in general, the economy is decelerating -, the situation between Iran and Saudi Arabia, which can degenerate into a war, as well as given the Brexit.

As a result, investors are looking for safe assets and are using the aforementioned three, which have strengthened while the other currencies weakened.

Locally, however, the Euro is only quoted against the leu, as the rest of the exchange rates are set through the Euro/leu and EUR with the specific currency (dollar, Swiss franc)".

In the opinion of lawyer Gheorghe Piperea, the defender of the customers in the lawsuits brought up in court against the banks, nothing spectacular has happened, for now, which would justify having such an exchange rate for the Euros, as well as the CHF. The specialist told us: "The ECB is keeping the interest rate at negative levels, and investors with money are fleeing towards real estate and gold for now. In Paris, apartments sell for 11,000 Euros per square meters, and we are talking about regular apartments. Thus, the investors' money is parked in real estate, and financial gold last week reached 213 lei per gram, whereas 7-8 years ago it was at 156 lei/gram. Some chief economists of commercial banks, who are also the bosses of treasurers and have a direct incentive in spectacular moves happening on the currency market, have said that the leu is about 10% too strong, and that a Euro should be priced at about 5.2 lei, as it follows from the latest IMF report on the Romanian economy. That would mean for a Swiss franc to be quoted at 4.8-4.9 lei, because it follows the same trend as the Euro.

That is where two major issues arise. First of all, it is the central bank that is responsible for the evolution of the exchange rate, because it maintains a fluctuation bracket, and if we have an overly strong exchange rate, like some bank economists are saying, then that means we have an artificial exchange rate. Also, if as a chief-economist of a commercial bank you say that the leu is too strong and that the EUR/RON exchange rate should be 5.2 lei, then people and investors immediately get worried, they start fleeing the leu, it is used instead to buy "serious" assets - such as convertible currencies, like the Euro, the dollar, the Swiss franc, financial gold -, savings aren't kept in lei, but in Euros, loans aren't taken in lei (or aren't taken at all), consumption gets limited, and as a result, output and hiring are reduced, layoffs start happening, inflation appears and within two-three months the weakening trend for the leu happens, even if it wasn't real in the beginning. Then austerity measures follow, and in the end, it's again the debtors that end up bearing the costs. But it won't be CHF borrowers this time - who governor Mugur Isărescu claims there are about 15,000 of, even though in reality there are about 55,000 -, but those with loans in Euros, who are far more numerous. An exchange rate of 5.2 lei/Euro means payments in lei that are 10% higher. So people need to take out of their pockets 10% more than before, with salaries not only not increasing, but actually declining. We will once again have market turmoil, far more extensive and serious, as consumers have shown such a lack of interest that only 241 signatures in support of the anti-usury laws have been collected".

The situation of CHF borrowers is of shrinking importance to the lawmakers, even though it hasn't been resolved, quite the contrary, but, quite the opposite, it has gotten worse, and now, with the Swiss Franc rising again, it will become even more thorny, said lawyer Piperea, who mentioned that the people who refused to show any solidarity with CHF debtors in 2015, they will end up in the same situation as them.

Gheorghe Piperea also told: "The laws which are now in the Parliament will be postponed for three years, if they do get through, and in the lawsuit rulings, the series of seminars organized by the NBR in Sinaia have been granted more importance than any actual legislation, any binding ruling of the Court of Cassation and, worse, any binding case law of the EU Court of Justice. The Romanian unified jurisprudence is unfavorable to consumers. The first who can testify in that regard are those with CHF denominated loans, but those with loans denominated in Euros will be next (a few hundred thousand people, meaning an entire social class), which will then be followed by those with loans denominated in lei, in about two years, given the current economic situation.

Now, plenty of those with loans denominated in CHF have ongoing lawsuits, but they have all been suspended, while they wait for for a response, perhaps the sixth one, from the Court of Justice of the European Union, to a few questions addressed by our court in a CHF loan. Many of the debtors have abandoned their lawsuits to accept some of the conversion programs proposed by the lenders, but the loans have been converted at interests based on the ROBOR plus the bank's spread, and now ROBOR is no longer 0.7%, but over 3%. On top of that there are also a number of commissions, which add to an annual effective interest rate of 7-8%".

• CREDERE: "We are still looking for solutions to the issue of CHF denominated loans"

Debtors don't seem to have abandoned the fight. The representatives of the CREDERE Association are saying that CHF borrowers are still looking for solutions to resolve the situation they are going through: "We are still looking for solutions to the issue of CHF loans, a problem which seems to have been far from home. So far, the Romanian government hasn't offered any viable or fair solution to help the people who have been cheated by banks. The banks, even less so.

At this time we are trying to use several «levers» which can lead us towards the long awaited result:

- The validation by the CCR of the draft law which amends the law of giving in payment. This draft law adds clarifications about the manner in which the unpredictability should be analyzed, and as a result, the totally disjointed practices which are generally unfavorable to the borrowers should be removed from the courts. Normally, if that law gets passed, CHF debtors should obtain in the courts a balancing of the contract by setting the exchange rate at a value at most 20% higher than those paid at the time the loan was granted.

- The switch of the Romanian courts to the European case law, which is far clearer where those loans are concerned, making justice for consumers. Of a crucial importance is the case no. C-81/19 (a ruling on it is expected sometime next year), where the CJEU should settle the issue of monetary nominalism, a principle of the old civil code which, at this present time, is applied to the courts to the detriment of the decisions rendered by the CJUE (and in favor of the banks). Of great importance in this matter, is the lawsuit which the Parakletos association, led by Mr. Piperea, brought against all the banks which have granted loans denominated in CHF. For now, the case is at the High Court of Cassation and Justice.

- The draft laws submitted by Mr. Daniel Zamfir in the Senate, the so-called anti-usury laws. One of these drafts refers to the conversion of foreign currency loans, specifying the obligation of the bank to convert the loan at an exchange rate by at most 20% over the time of the granting.

Unfortunately, any of these approaches is taking very long, which is totally unfavorable to the debtors. Five years have already passed since the explosion of the CHF exchange rate, which is still very high (and these days we are witnessing it coming back to its values of January 2015), and people are now at the end of their rope. If we are referring to the manner in which the CHF dossiers are treated in the Romanian courts, to say nothing of the instability, disinterest, and even the aggressiveness of the public on this subject (several political parties and/or political leaders publicly took a stance in favor of banks and against the debtors), we can say that it is more prudent to be cautious".

According to CREDERE, many debtors do not have financial and psychological resources to bear long-lasting lawsuits, whose results are currently unfavorable to them in most cases. The quoted sources told us: "An intervention by the government, even at the last minute, would be welcome. Because it has allowed this fraud to happen, and has actually protected the banks that did it, the Romanian government has this obligation towards the Romanian CHF borrowers.

We still have hope though, and we will see through all the actions that we have begun, in order to get a good result and to install a state of normalcy".