THE SOLUTION TO THE CHF BORROWING CRISIS: Olteanu: "A formula for sharing the burden must be found"

If the law on the conversion of loans denominated in foreign currencies which the Ministry of Public Finance is currently working on, were mandatory, then customers could be hurt, says NBR deputy governor Bogdan Olteanu.

The mandatory nature of that regulation is debatable, he said: "If the law were mandatory, it would have repercussions on the banks' equity and it could be challenged by bankers. If we make it voluntary, then banks that don't want to get involved won't, and the ones that are interested will join the program. But the law being optional would be preferable for debtors as well, because if a few banks adhered to this program, their customers could benefit from its provisions, but if a banker challenges it and it is declared unconstitutional, no one will benefit from it anymore".

Mr. Olteanu's statements come as, while the legislative project which the Ministry of Public Finance is working on has an optional nature, consumers are demanding for the law to be made mandatory for all banks, if it gets passed.

The legislative draft stipulates the conversion at a discount, in lei or foreign currencies, of the loans denominated in a currency that has weakened more than 50% compared to the leu at the time the loan has been taken out, with the state set to guarantee 50% of the balance remaining after the application of the discount.

In the opinion of Bogdan Olteanu, it is possible for banks to be interested in that program, which has benefits for lenders as well. "It is hard to evaluate the attractiveness of this project now, when it is not yet in a final form. We will leave them (ed. note: the representatives of the Ministry of Public Finance and those of the CHF borrowers) to negotiate and then we will review the project which they come up with. It will probably take days or weeks before it is done. Regardless, a formula for sharing the burden between banks and debtors must be found. Hence the ideological differences".

On Friday, the Association of Romanian Users of Financial Services (AURSF) has sent to the Ministry of Public Finance the customers' proposals concerning the draft law initially launched by former finance minister Darius Vâlcov, after the meeting which the two parties had last week.

Customers are demanding for the monthly loan installment, resulting from the conversion and the application of all the commissions proposed by the new loan, to be at least 20% lower than the equivalent in lei of the monthly installment of the loan prior to the conversion.

"There has to be some guarantee for the borrower that the cuts resulting from the discount will not be offset at all or at least marginally by the increase in commissions/interest, as well as through the switch to ROBOR (...), which could affect the monthly repayment", says the AURSF.

Among other things, customers are demanding for the law to apply to loans outsourced by financial entities to foreign entities, a stipulation which is not included in the current version of the draft law.

"The most important argument in favor of extending this program to those loan portfolios as well is the fact that legally, there is no impediment in the state collecting its receivable through the foreclosure of the asset affected by the mortgage", debtors claim.

The main proposals of the bank customers are a 25% discount off the balance of the loan and the elimination of the initially proposed caps on the debtors income and the value of the property, which the law would apply for.

The AURSF has also asked for the increase of the guarantee amount from 1 billion to 3 billion or the periodic resumption of the program, as budget resources are identified for that.

CHF borrowers have also talked to finance minister Eugen Teodorovici about the possibility of extending the program to collateral-backed mortgage loans, used for residential purposes, as the initial project concerned only real-estate loans.

Concerning the commissions proposed as part of the legislative initiative, the AURSF claims that the text of the law has to mention the amount of the risk fee, as the management fee represents "the amount owed only once over the existence of the program (...), of 500 lei".

Since the project requires the transfer of the first ranking mortgage over to the state, consumers think that this right should be "proportional with the collateral percentage".

More specifically, both the bank and the state would have an equal mortgage right over the property put up as collateral, taking into account the fact that the state would guarantee half of the amount of the loan resulting after the application of the discount.

Finance minister Eugen Teodorovici, said on Friday, in a press conference, that he has agreed to most of the consumers' proposals, except for the one concerning the optional nature of the law, and that, in the coming days, he will generate a version of the project, which it will send to banks and to the NBR, as the latter is expected to issue its approval of the law.

A significant number of borrowers that took out loans denominated in CHF are unable to make their monthly loan repayments, after the Swiss currency unexpectedly strengthened in January, when the Swiss Central Bank lifted the 1.2 CHF/EUR peg, which it had imposed in 2011.