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Banking Sector: Difficulties in Croatia Ahead

Published: November 6, 2013; 09:56 · (Vindobona)

In order to protect indebted home-owners, the Croat parliament will resolve a new bank act. Like in Hungary, foreign-exchange-based mortgage should be converted at the expense of banks.

Banking Sector: Difficulties in Croatia Ahead / Picture: ©

About 75,000 Croat borrowers are repaying foreign currency loans. Most of them took out Swiss franc loans and euro loans. After 2008, interest payments went up suddenly.  Now, Croatia´s government plans to set fix interest rates for foreign-exchange loans. The government has submitted a proposal to the parliament, which will vote on the proposal next week.

The European Banking Association already protested against the plans of the Croat government. According to Croat news agencies, banks must expect losses of more than € 100m.

In summer, the Croat Commercial Court decided that eight Croat banks did not fulfill their duty of consultation. According to the Commercial Court, banks must convert the loans into the Croat currency within 60 days. The exchange rate has to be the rate of the date when the contract was concluded. Moreover, the interest rate has to be fixed ex post. The decision is not legally binding yet. Austrian Erste Group, RBI (Raiffeisen Bank International) and Hypo Group are affected by this decision. The banks appealed against the Commercial Court´s decision. The Court of Appeal is expected to decide in two years.

According to economist Vladimir Cavrak, the share of Swiss franc loans in personal loans comes at 18%. This corresponds to € 3bn. “In view of this relatively small proportion, it is very likely that banks have enough resources to bear potential losses.” Only in case of the conversion of euro loans, banks may record substantial losses.

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