Banks operating in Slovenia fear that a new law tackling the historic problem of Swiss franc lending could have negative effects for around 80% of the sector.
Loans denominated or pegged to the Swiss franc were popular in the 2000s in a number of central and southeastern European countries, including Slovenia. However, when the Swiss central bank stopped defending the value of the franc against the euro in 2015, causing its value to soar against the EU’s single currency, many borrowers struggled to repay.
Seven years later, the Slovenian government introduced a new bill to tackle the problem on January 19. The third reading and vote in parliament is scheduled less than two weeks later, on January 31.
This is the third attempt to pass legislation on Swiss franc loans, after the failure of two previous attempts. Unlike previous iterations, the current proposal does not include the conversion of Swiss franc loans into euros. Instead, it introduces a cap on the exchange rate of 10% over the exchange rate at the time the loan was issued. This is applicable retroactively up to 17 years.
Banks fear major negative effects of the legislation. A spokesman for Vienna-based Addiko Bank said around 80% of the Slovenian banking market would be affected by the law. Many banks would need recapitalizations.
The banks argue that the law is unfair because it favors borrowers who have chosen to take higher risks by taking out a loan in Swiss francs. Another problem is that the law is retroactive; it concerns all consumer credit agreements in Swiss francs entered into between June 28, 2004 and December 31, 2010, including those that have been reimbursed, converted into euros or sold to third parties.
They ask the Slovenian authorities to reconsider the law and to launch a longer consultation period so that the positions of all stakeholders can be taken into account.
“The proposed law … raises concerns because it lacks proportionality on the one hand, going beyond what is necessary to ensure the protection of customers, and clear eligibility criteria according to which borrowers can apply for the conversion,” reads a letter sent by shareholders of Slovenia’s five largest banks to President Borut Pahor, Prime Minister Janez Jansa and other Slovenian and European officials, shared with bne IntelliNews.
“The main burden of such retroactive loan restructuring must be borne by the banks with an expected negative impact on the profitability, capitalization and future lending capacity of the banking sector as a whole. An additional effect of this proposed law is that banks will have to burden their balance sheets with losses on loans already sold or closed in line with the ECB’s strategy to reduce the NPL ratio,” the letter adds.
The bankers also argue that the adoption of the bill “would send a signal to the international community that in Slovenia a legislative authority can interfere with any valid agreement, which would create an unpredictable business environment, not only for banks but for economy as a whole, which would have negative consequences for investments in the Slovenian economy.
“The law would significantly damage Slovenia’s reputation as a reliable international financial market,” commented Kurt Pribil, Chairman of the Supervisory Board of Addiko Bank AG.
“As a member of the euro, the rules of the monetary union must also be applied in Slovenia. We would challenge any such law in national and European courts and are confident that the respective courts would follow our arguments. – as they have done in the past.”