Romania: mortgages in Swiss francs is the key problem

Romania prepared to vote on a plan to convert Swiss franc mortgages to the domestic currency at the exchange rate applicable when they were issued, Reuters reported on Friday; romanian lawmakers are expected to pass a bill on Monday.

There are about 50,000 loans still denominated in Swiss Francs and banks are on the edge to lose €540 mln, according to Romanian central bank’s estimates.

When in January 2016, the Swiss National Bank abandoned its three-year policy of pegging the value of the Franc to the Euro at a fixed exchange rate, the Swiss currency has appreciated, above all after European Central Bank introduce a massive stimulus program.

Housing mortgages in Swiss Francs have seen double-digit appreciation causing immense hardships to debtors who have been struggling to repay debt after Swiss Franc / Romanian Leu exchange rate soared to a record-high of over 4.5 RON.

There are three proposals to debate. The Hungarian-Polish model of converting loans in Swiss Francs (CHF) into local currency at the exchange rate in place when they were issued. A second proposal grants banks a 20% surcharge on the historical exchange rate. Finally, the Finance Ministry proposes to grant public guarantees to banks that will provide their clients with an unspecified discount.

The country goes to the polls in December and the issue has become a key electoral debate. The Social Democratic Party (PSD) and the National Liberal Party (PNL) support the conversion of mortgages that will allow mortgage holders to convert their loans to leu.