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The program to convert, at a discount, the loans granted by Volksbank in Swiss francs (CHF) will be applied by Banca Transilvania (BT), after it becomes a shareholder of Volksbank, Nicolae Cinteză, the head of the Oversight Division of the National Bank of Romania (NBR) said.
Present in the Budget Commission of the Chamber of Deputies, which discussed the issue of loans denominated in Swiss Francs, he said that Banca Transilvania is required to do that under the contract by which it acquired Volksbank. BT is now waiting for the approval of the Competition Council and of the NBR to become a shareholder in Volksbank.
Two months ago, Mr. Cinteză was telling us that the solution proposed by Volksbank was very good, but he mentioned that the decision belonged with the bank and in order to support it, the lender had increased its share capital.
The head of oversight of the NBR told us, at the time, that the solution that Volksbank had come up with was to convert the loans taken out in CHF at the current exchange rate, with a discount: "The conversion at the exchange rate of the day (ed. note: of the day of the conversion), with the granting of an exposure discount. More specifically, the transfer will be done in lei at the exchange rate valid on the day of the conversion, and then the discount will be applied to the exposure. Thus, if we divide the remaining exposure by the amount of Swiss francs, we get an exchange rate of 2 lei and a bit for one CHF".
This measure will also put pressure on the remaining banks, but it remains to be seen whether they will be capable of applying similar measures without drastically diminishing their insolvency and equity ratios, the NBR official further said.
"I am not convinced that all banks that have exposure to Swiss francs will be capable of bearing the application of a discount to the conversion of these loans", said Mr. Cinteză, who added that, in the case of several financial institutions, the level of solvency will fall below 6% - the minimum required level -, and some of them would reach a solvency ratio of less than 2%, in the event of the conversion of the loans denominated in CHF at the historic exchange rate.
"If the solvency ratio drops below 6%, the bank already has to apply the special administration procedure, and below 2% the bankruptcy procedure gets implemented. (...) Immediately after the implementation of the special administration procedure, the NBR is required to announce it, and on the next day there would be lines in the bank, deposit withdrawals, liquidity pressure, thus bankruptcy. No bank that has entered special administration could ever be saved", said Nicolae Cinteză.
We can not pass a generally valid solution, for the conversion at the exchange rate, because we would have major losses in the system, said Mr. Cinteză, who said that the solution has to be discussed with each bank individually: "Somebody said that the volume of loans denominated in Swiss francs does not represent a systemic risk, but a bank's default is a systemic risk".
Advisor to the governor of the NBR Adrian Vasilescu mentioned on several occasions, that the portfolios of loans denominated in Swiss francs are not so large that they would represent a problem for the system, as they only account for 4.6% of the total volume of loans.
According to Nicolae Cinteză, commercial banks claim that the procedure of converting the loans at a different exchange rate than the one valid on the day of the transaction is unconstitutional: "The banks' own equity will be affected, as it is the property of the shareholder, and the Constitution guarantees the right of ownership".
Even though there are people that claim that there are requests for loan conversion that have yet to receive an answer after three years after their submission, Nicolae Cinteză claims that financial institutions have already been sending conversion proposals for a few years: "One bank sent 14,000 requests for reconversion. It received about 400 responses. The rest have probably gotten giddy with the hope that they would win who knows what lawsuits with the bank, and succeed in converting their loans at the historic exchange rate".
• Cinteză: "Today we are going to have the issue of Swiss francs, and tomorrow we are going to have the issue of the Euro"
The head of oversight of the NBR also said that if today, a normative act were to be passed for those that have loans denominated in Swiss francs, we would later have the issue of those with loans denominated in Euros, because in their case the exchange rate has increased as well, from 3.13 lei/Euro in mid-2007 to approximately 4.5 lei/Euro, currently.
In his opinion, the NBR could not have prohibited the granting of loans denominated in CHF, in 2007-2008, because it would have been accused of abuse, and it could have even been "held criminally liable".
Besides, "at the time, the Swiss franc posed no risk", Mr. Cinteză further said.
Emphasizing the fact that not all of the 14 banks that have issued loans denominated in CHF have a significant exposure to that kind of loans, Nicolae Cinteză emphasizes the fact that the law of insolvency, which various parliamentarians have proposed as a solution over the last few days, does not resolve the issue.
The NBR official considers, however, that the proposal of the Minister of Finance, namely, the rescheduling of the loans following the amended version of the "electoral loan installment cut", can provide short term benefits to debtors.
According to Mr. Cinteză, the losses in the banking system, at the end of November 2014 have far exceeded the forecasts (of more than 2 billion Euros), as the estimates for the end of the year are far gloomier.
These financial results come as a result of the huge rise in the number of non-performing loans over the last few years.
• Alin Iacob, AUSRF: "We strongly reject the idea that banks would lose money"
The association of Romanian Users of Financial Services (AURSF) continues proposing the conversion of loans at the exchange rate in effect at the time they were granted, plus 20%: "We strongly reject the idea that banks would lose. Banks have already earned enough so far, to be able to afford this conversion. We are not speaking about just loans denominated in Swiss francs, but about foreign currency loans in general, to avoid having the same issue later with loans denominated in Euros. We have consumers whose loans have been restructured, but it was done in such a way that they later ended up worse".
Marius Dunca, the president of the National Authority for the Protection of Consumers (ANPC), says that he won't shed tears over banks.
"I won't cry over banks, I am here to protect consumers", he said, and he emphasized that he supports any legislative initiative that comes to the aid of the customers.
"The general financing terms show that, if the exchange rate of the currency that the loans are denominated in increases more than 10% compared to the one in effect at the time the loan was contracted, the conversion becomes possible. It's just that the banks have not notified the customers in that regard".
• Andreea Paul: "Some banks have allowed an indebtedness ratio of more than 100%"
In 2007, the NBR raised the indebtedness ratio from 40 to 70%, and for the Swiss franc banks set up their own restriction, with the approval of the Central Bank, said PNL deputy Andreea Paul, who added that some of the banks, such as Volksbank, had a limit of 90% and in some cases, even above 100%.
In response, Nicolae Cinteză said that, at the time, the limit was being calculated based on the family income, after subtracting the basic living expenses stipulated by the Government.
Consumers have been "sold on" taking these loans, says Alin Iacob, the president of the Association of Romanian Users of Financial Services (AURSF), who reminded the fact that on the next month after the fixed interest rates had expired, "people would end up incapable of meeting their monthly repayments".
Speaking about "irresponsible lending" practiced by the banks that gave out loans denominated in Swiss francs, Alin Iacob said: "People had an immense trust in banks. Nowadays, however, after the way some banks acted, confidence is very low".
• Steven van Groningen: "The costs will be shifted to depositors and debtors that pay their installments on time"
There are also depositors that deserve attention, said Steven van Groningen, the president of the Council of Banking Professional Associations, who mentioned: "Let's not create pointless costs that will sooner or later lead to lower interest rates for depositors or to higher costs for those that pay their debts on time".
Not every bank in Romania has issued loans denominated in Swiss francs, he added, and he emphasized that the volume is relatively low and "we can't be talking about a systemic issue. Situations differ from one borrower to the next as well. We also have people with high income, that have no problem making their repayments. Every bank has the obligation of finding solutions for every customer".
Steven van Groningen also said that the bank he represents, specifically Raiffeisen Bank, does "daily" loan restructurings, and he said that there are always solutions for people who are in difficult situations, but that he is concerned over the fact that he would have to save other banks' customers out of the money of the bank he leads.
This statement comes in response to the proposal by PSD deputy Ana Birchall, who said that banks should create, out of their own profits, a solidarity fund for serious cases.
The deputy has also proposed another amendment to her legislative initiative in the Chamber of Deputies (which stipulates the conversion of loans denominated in foreign currencies at the current exchange rate, without other costs and guarantees), according to which, in the case of loans denominated in CHF, the conversion would be done at an average exchange rate, calculated as the average mean of the monthly exchange rates valid in the months elapsed since the loan was granted.
• Darius Vâlcov: The "electoral loan installment cut" may be applied, in its new form, starting with March 1st
Present at the meeting of the Budget Commission of the Chamber of Deputies, Finance minister Darius Vâlcov explained that the structure of the "electoral loan installment cut", which came into effect this year, will change completely, to allow it to apply to debtors who have borrowed in Swiss Francs. The "electoral loan installment cut" currently covers 51% of the numbers of CHF borrowers, and its new form it would apply to 70%-75% of the debtors denominated in CHF.
The new concept assumes that the salaries of those concerned would be a maximum of 3,000 lei, up from 2,200 in the current version.
The rescheduling would be done over a period of two years, and the tax credit would be applied right away.
"If our draft is approved, it may become applicable on March 1st", Vâlcov further said.
The impact that the future ordinance which would amend Emergency Government Ordinance 46 on the state budget would range between 0.1% - 0.15%, the minister said.
According to him, the leverage ratio of low and medium income citizens is extremely high, sometimes even higher than 100%. CHF loans amount to 9.8 billion equivalent in lei.
• Specialists: "The law of bankruptcy only partially resolves the problem"
Over 800,000 debtors have non-performing loans and could benefit from the law of individual insolvency, lawyer Gheorghe Piperea said yesterday in the Juridical Commission of the Chamber of Deputies, quoted by Mediafax: "I think that this law is absolutely necessary. This law would have been necessary since back in 2009.(...) The unbearable level of the exchange rate for those that have loans denominated in Swiss francs is, however, a problem that can only be partially resolved through this law, because not everybody who has loans denominated in Swiss Francs imagines they are going to lose their homes through an insolvency procedure, they want to keep their homes that they bought and they want to stay with the contracts that they made, in the form they had in 2007. It's not just people who have loans denominated in Swiss Francs that are capable of benefiting from or submitting to this regulation, there are over 800,000 non-performing debtors, this is what the Credit Bureau stipulates and as a result, they are also interested in getting under court protection as well".
In his opinion, one that is shared by some parliamentarians, the implementation of such a law can not be done from one day to the next, because it takes time and specialized personnel.
The law of insolvency for individuals should set up a balance between debtors and creditors, "to maintain repayment discipline and to avoid hazard among debtors", said Florin Dănescu, executive president of the Romanian Banking Association (ARB).
The RBA warned that the impact of a regulation concerning personal default, which would disregard the banks' opinion, would affect the banking prudential ratios.
The specialists of the CITR share the opinion that the procedure of personal insolvency would not be much help in the issue of the strengthening of the Franc, because it is only favorable to those who are in default, as for the remainder of individuals that have outstanding loans in the Swiss currency the situation could get worse.
In the event of the application of a law of personal bankruptcy, debtors have the option of proposing a repayment plan, over a maximum period of five years. The plan must stipulate the method that the individual debtor would use to repay their debts owed to their creditors, within the order or their priority under the law, out of various sources of income. The plan gets implemented only if it is accepted by at least 50% of the non-related creditors and confirmed by the court.
Quoted sources are saying that it is very hard to believe that an individual that has borrowed for a period of 15-20 years could take on repaying such a loan over a period of just five years.
In the Parliament, there are only five legislative projects on this issue.
• Only three banks out of 14 have announced measures to protect CHF borrowers
Raiffeisen Bank has announced it would cut the interest rate for its customers that have borrowed in Swiss francs, starting on January 23rd, having reset it in advance, five months ago, after the Swiss Central Bank cut the policy rate by 0.5%, to -0.75%.
"We have decided to cut the interest rate on these loans now, even though the reset deadline was June 30, 2015, to prevent monthly installments from being so heavily affected by the rise in the CHF exchange rate. It is yet another one of our ways to back our customers during this difficult period. However, the most effective way of supporting our customers that are having trouble making their payments remains the restructuring of the loan, which we have been offering, on a case by case basis, since back in 2009", said Vladimir Kalinov, vice-president of retail banking at Raiffeisen Bank.
Raiffeisen Bank has 8,800 CHF loans in its portfolio, all of which are guaranteed with real estate collaterals.
OTP Bank was the first that decided to temporarily cut the interest rate, by up to 1.5 percentage point, for customers that have CHF loans with variable interest rate.
Yesterday, the bank announced that it has increased its share capital by 175.344 million lei, to 958.252 million lei.
OTP Bank România has ended the first nine months at the end of last year with a net profit of 2.4 billion forints, (7.7 million Euros), after posting losses of 1.68 billion forints (5.6 million Euros) at the end of 2013, according to the announcement made by the bank.
In January this year, OTP Bank România has completed the acquisition of Millennium Bank România from Banco Comercial Portugues, deal which increased its market share to approximately 2% of the banking market and caused it to rise to the 13th spot on the Romanian banking market.
In the beginning of this week, Volksbank România announced that it would keep a fixed exchange rate of 3.8035 lei for a Swiss franc, for a period of 3 months (between January 20 and April 17th 2015).
The reference rate announced yesterday by the NBR was 4.5054 lei for a Swiss franc, which reached a new historic high.
This move e evolution of the Swiss franc over the last few days comes as a result of the decision of the Swiss National Bank to remove the 1.20 cap on the Swiss Franc against the Euro, which it had set in 2011.
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