Croatia’s FX-Loan Plan May Cost Banks 350 Million Kuna a Year

Proposed changes to Croatia’s law on consumer lending may cost banks about 350 million kuna ($62 million) a year in a government plan to help households facing the rising costs of loans denominated in Swiss francs.

Lawmakers in Zagreb debated whether to restrict variable interest rates in foreign currency loans in which the currency had appreciated more than 20 percent since the signing date. 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. Foreign banks including UniCredit SpA, Intesa SanPaolo SpA, Raiffeisen Bank International AG, and Erste Group Bank AG make up almost 90 percent of the lending market.

The 350 million kuna “is our estimate of the cost, from the moment the law comes into power,” Zana Pedic, head of the directorate at the Finance Ministry, said by phone in Zagreb. “We believe that the burden of foreign currency loans can be more equally distributed between citizens and the banks.”

The proposed changes may still be amended in a second reading in parliament, Pedic said.

Croatia’s law proposal follows a July court ruling in Zagreb against the local units of eight foreign-owned banks for misleading borrowers holding Swiss-franc loans.

It comes as other countries also struggle to deal with foreign-exchange loans. In Hungary, Prime Minister Viktor Orban’s government has vowed to “eliminate” more than $15.6 billion in mostly Swiss franc loans that have choked household spending and hindered an economic recovery. The plan has drawn criticism from some lenders after they lost $1.7 billion during a 2011 program to tackle the debt.

The Croatian proposal “introduces retroactive elements in the existing contracts and leads into legal uncertainty,” Zeljko Ivankovic, an analyst at the Croatian Banks’ Association, said by phone.

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