Overdue loans in Swiss francs have been climbing by more than EUR10 million per month, reaching the equivalent of EUR250 million at the end of May, EUR150 million more than at the end of May 2010, show data of the National Bank of Romania (BNR). This means around 200 debtors are defaulting on their payments every month, after they thought they were getting a good deal by borrowing during the boom years of lending at an interest of 3-4%, which compares with the 8-9% at which euro-denominated loans were granted, and the 16-18% interest on leu-denominated loans.
“Many clients pay installments 30-40% higher than they did in the beginning. The solution we most often resort to for those having trouble repaying their installments is to extend the repayment period,” says Johann Lurf, chairman of the management board of Volksbank, one of the banks that bet on this niche.
Eight banks, which include Raiffeisen and Bancpost, sold Swiss franc-denominated loans between 2006 and 2009, with the overall volume of loans exceeding the equivalent of EUR2.3 billion.
Paradoxically, many of those who took out loans in Swiss francs are employed in the banks that sold those loans, and who got them at preferential interests.
The Swiss currency on Tuesday reached an all-time high against the euro, at 1.1 francs per euro amid renewed concern over the euro zone sovereign debts.
Because trading of Swiss francs is marginal on the local forex market, the National Bank calculates the exchange rate based on euro/franc rates on international markets, and based on the leu/euro exchange rate on the Bucharest market.
This means the National Bank cannot intervene to limit the strengthening of the Swiss franc, as it can in the case of the euro. In fact, not even when Swiss franc loans were popular did the central bank intervene to regulate these products more carefully despite the significant forex risk.
The question is what can be done at the moment. In Hungary, where more than half the secured loans were granted in Swiss francs, the exchange rate was set as part of an agreement between the authorities and the banks.
In Bucharest, one Swiss franc surpassed 3.8 lei. Many of the 50,000 Romanians with loans in Swiss francs borrowed the money in 2006-2007, when the franc traded at RON2 to RON2.2.
(English version by Daniela Stoican, Editing by Loredana Fratila-Cristescu)