Croatia Pushes on With FX-Loan Plan as Banks Cry Foul

Croatia’s government will push to change the law on consumer lending, even after the central bank said it will cost more than double earlier estimates and the banking association called the move “unconstitutional.”

Prime Minister Zoran Milanovic’s administration has proposed a law to restrict variable interest rates on foreign-currency loans to help households who have seen monthly payments on mostly Swiss franc-denominated loans jump after that currency appreciated versus the kuna and other emerging European currencies in the global economic crisis.

The central bank said on Oct. 14 the changes to the law may hurt banks’ stability and cost them some 759 million kuna ($135 million) a year, or two-fifths of 2013 estimated profit. Croatia’s Banking Association said the same day the proposed amendments are “unconstitutional” and seek to “retroactively intervene in existing contracts.” Deputy Prime Minister Branko Grcic said the government would push ahead.

“In the past years the banks here have made good profits,” Grcic told public broadcaster Croatian radio today. “They will continue to make profits even after this law is implemented, while the government’s job is to protect the citizens.”

Foreign Banks

The central bank’s estimate eclipses the 350 million kuna a year price tag given by a finance ministry official on Sept. 19. Foreign banks including UniCredit SpA (UCG), Intesa SanPaolo SpA (ISP), Raiffeisen Bank International AG (RBI), and Erste Group Bank AG (EBS) make up almost 90 percent of the lending market.

Lawmakers in the capital Zagreb are expected to debate the bill in coming weeks. There are an estimated 75,000 loans in Swiss francs in Croatia, totaling 28 billion kuna, according to Banka Magazine.

If the plan is approved, Croatia would follow neighboring Hungary in forcing banks to share costs with borrowers who have seen their monthly loan payments jump since the kuna lost more than 25 percent against the Swiss currency in the global economic crisis.

To contact the reporter on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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