THE NUMBER OF PROJECTS ON THE ISSUE OF LOANS DENOMINATED IN SWISS FRANCS IS STARTING TO INCREASE Banks hammering the Parliament in the head, using the People as an anvil

The issue of loans denominated in Swiss Francs (CHF) is becoming increasingly disputed in the Parliament, where it seems that an increasing number of controversies are taking place concerning the numerous draft laws filed on the matter.

A number of legislative initiatives which either stipulate the repayment of the loans denominated in Swiss francs at the exchange rate in effect at the time of the signing of the contract, or their conversion into a different currency or the postponement of the foreclosure for non-performing loans were sent to the Chamber of Deputies, for approval, after passing through the Senate, tacitly or not.

However, several political sources claim that in the Parliament, banks are exerting heavy pressure, through the Government, the Central Bank, or the international institutions for the legislative drafts in question not to be approved.

Our sources told us: "We've always been subjected to pressure by banks. They are doing everything in their power to prevent the passing of this kind of proposals. They are intervening through the government, through the NBR, through the IMF or through other such entities. Even in the letters of intention signed between 2009-2011, when the Ordinance 50/2010 concerning loan agreements for consumers was approved, the IMF has asked the Government not to approve the initial form of the Ordinance in question".

At the time, several lawyers, representing groups of bank customers unhappy with the terms of their loan agreements, were saying that the IMF was pressuring the government to get "favorable" amendments, in the debates taking in the Parliament concerning Emergency Government Ordinance 50.

In 2010, the banks have asked the IMF and the European Commission to limit the provisions of the Emergency Government Ordinance 50 to the requirements of the European Directive on the matter.

The representatives of the banking system said, at the time, that if the provision which stipulated that the Ordinance would only apply the European requirements wasn't included in the additional letter of intent which the Romanian authorities and the delegation of the IMF were going to sign at the time, commercial banks might ask the European Commission to open an infringement procedure against Romania.

At the time, the IMF asked the Government to amend Emergency Government Ordinance 50, if it wanted to get the next tranche of the loan.

Jeffrey Franks, the head of the IMF mission in Romania at the time, said that EGO no. 50 should only apply to new contracts, rather than retroactively, because it would generate significant economic risks: "We need to do this in such a way that the ordinance will minimize the banks' risks, while still ensuring the protection of consumers".

The quoted sources said: "Such practices, which emphasize that the application of legislative drafts could change macroeconomic ratios, by limiting the trade deficit, are forms of pressure. Under these circumstances, the question arises which member of the Parliament would dare do otherwise than the Government wants"?

• The foreclosure of borrowers in Swiss Francs could be postponed for three years

The agenda for the coming days of the Budget, Finance and Banks commission of the Chamber of Deputies includes a draft law which concerns postponing the foreclosure of borrowers that have taken out loans denominated in Swiss Francs.

PSD deputy Ioan Munteanu, one of the initiators, told us that the document went tacitly through the Senate, but he expressed his doubts over its chances of being passed by the Chamber of Deputies, which has the power to decide: "It is now in the Budget commission and it is set to enter the meeting of the Chamber, but I don't think it will succeed, because the Government doesn't support this draft".

According to the draft of the law, the homes that are foreclosed due to the failure to pay the installments for loans denominated in Swiss Francs will be granted a three year reprieve.

At the end of the reprieve period, the debtor is required to resume repayment of the loan, according to the document, which stipulates that banks will not charge a different interest rate than the one stipulated in the contract, adjusted with the inflation rate for the outstanding amounts.

The argumentation adds: "The loans denominated in Swiss Francs, granted in the previous years to the citizens, were rather deceitful to customers, as demonstrated by the fact that this type of loan has been withdrawn from the market and the fact that the exchange rate has doubled (...) The banks that have granted these loans denominated in Swiss Francs could have avoided their harmfulness, had they lent smaller amounts, over a shorter term. Their laziness and their greed has caused them to grant loans for the long term and to shift 100% of the risk to the customer and they have not acted to eliminate of their own initiative the risk fee in the agreement and to repay to their customers the related amount and the interest".

The initiative is signed by parliamentarians representing several parties, such as the PSD, PNL, PDL, PP-DD and UDMR.

• Nicolăescu, about the draft law submitted by the deputy of the UDMR: "It will probably be included on the agenda next week or two weeks from now"

Also in the Chamber of Deputies is the legislative initiative which stipulates that borrowers that have taken out loans denominated in foreign currencies may be allowed to repay them in advance or to refinance their loans at the exchange rate in effect at the time the loan agreement was concluded.

There are rumors that some politicians are delaying the passing of this draft law. Eugen Nicolăescu, the president of the Budget Commission of the Chamber of Deputies, told us that for now, the initiative is not on the agenda of the Commission. "Perhaps it will be included on the agenda next week or two weeks from now", he told us: "There are at least two opinions - one in favor of the beneficiaries and one that attempts to keep neutrality, as it is against the elimination of clauses from earlier loan agreements".

UDMR deputy Odon Szabo, one of the initiators, told us that this initiative has gone through the senate tacitly as well.

There is pressure from the banking system as well in this case, as our sources told us: "There is enormous pressure from the banking system for the initiative to be withdrawn. We are getting new versions which favor the banks, we are being threatened and even worse. The banks are lobbying for the elimination of the draft, claiming that it would cause a market deadlock".

According to the UDMR deputy, calculations show that those who opt to refinance their loans under the new terms, would gain at least 20% and up to 50% of the amount that they would have to repay at today's exchange rate: "There are situations, particularly for loans denominated in Swiss Francs, where the installments have increased by as much as 80%, even though there is a draft Directive that does not allow increasing loan installments by more than 20%".

A few months ago, officials of the National Bank of Romania were saying that loans denominated in the controversial currency exceed 1 billion lei, that the banking system would not be affected by a potential decision to convert the loans denominated in Swiss Francs to the local currency at the exchange rate that was in effect at the time the loan agreements were concluded. However, the NBR officials recently said that "The NBR can not support any legislative proposal which concerns making it mandatory for the lender to accept the repayment of the loans denominated in foreign currencies at a different exchange than the one which was in effect at the time of the restructuring of the loan (for changing the currency of the loan), because it goes against the legislation of the EU on the matter - Directive 2014/17/EU of the European Parliament and of the Council concerning loans granted to consumers for residential real estate, of February 4th, 2014 - an act of the European Community which needs to be transposed into the legislation of the member States no later than March 21st, 2016".

The representatives of the Central Bank told us yesterday that the NBR "has no opinion" concerning the legislative initiatives on this issue.

Odon Szabo emphasizes that the European Directive that the NBR is referring to will be implemented starting in 2016, but until then, every country may organize its portfolio of loans according to its own rules. " The NBR is not siding with the citizens, it is siding with the banks", he added.

2,400 people who have borrowed in Swiss francs have filed lawsuits against the banks that they took out the loans from.

The list of banks that were sued by borrowers in Swiss francs includes Volksbank, Raiffeisen, Bancpost, Credit Europe Bank, Piraeus Bank, Millennium Bank.

The plaintiffs are requesting the repayment of the loans at the leu-Swiss franc exchange that was in effect at the time of their contracting, as the Franc has strengthened greatly compared to the Romanian currency.

Gheorghe Piperea, the lawyer who represents the bank customers in the collective lawsuit, said: "The Swiss franc has risen chaotically over the last few years, amid the crisis, because all the speculative investors are placing their money in this exotic currency, which is considered a safe haven currency, and in gold. It's an entirely different situation than that of the Euro-RON exchange rate, which is very strictly contained within a narrow band by the National Bank of Romania. The NBR intervenes in the market whenever there is a need for that exchange rate to be kept relatively stable, excises and other payments are calculated in Euros, whereas the Swiss Franc fluctuates according to supply and demand, of which the former is still very high".

In other countries, movements are happening concerning loans denominated in foreign currencies. Regulators want the elimination of loans denominated in foreign currency in Eastern Europe, because they have brought some countries on the edge of default, during the credit crisis. Such loans offer beneficiaries in emerging countries lower interest rates, but the repayments can increase if the local currency weakens, as has happened in Hungary, Romania and Ukraine.

Marek Belka, the governor of the Central Bank of Poland, advises lenders to eliminate mortgage loans denominated in Swiss francs, before the members of their respective parliaments force them to convert them into the local currencies, which could cause them to incur losses, as has happened in Hungary.

Loans denominated in foreign currencies could tempt populist politicians to follow the example of Hungarian prime-minister Viktor Orban, who forced banks to take billions of Euros in losses, Belka said in an interview, quoted by Bloomberg.

Over the last three years, Hungarian prime-minister Viktor Orban has applied the most aggressive policy of converting mortgages denominated in Swiss Francs. In 2011, Hungary forced banks to take losses of 1.7 billion dollars, when it allowed borrowers to fully repay mortgage loans denominated in foreign currency, at an exchange rate lower than the one effective in the market.

This spring, the Court of Justice of the European Union issued a ruling in favor of the plaintiff in the case Kasler vs OTP Hungary. According to the European Court of Justice, whereas so far some judges thought that the cases dealing with currency exchange rate differentials were not the concern of the courts because that difference represented part of the cost of the loan, in the future, the courts will be allowed to issue rulings in such cases, and decide whether the clauses in question were abusive or not.

According to lawyer Gheorghe Piperea, one third of the borrowers are in default. He said that, whereas in 2010, there were about 5.5 million borrowers, out of whom about 750,000 were unable to repay their loans, now, more than 1 million borrowers are in default, out of approximately 3.2 million.