(Adds reaction from banks in paragraphs 8-10)
By Igor Ilic
Croatia’s Constitutional Court
on Friday rejected local banks’ request to assess whether a law
forcing lenders to convert Swiss franc loans into euros is in
line with the constitution.
Households and firms across Croatia and eastern Europe who
had taken out Swiss franc mortgages to benefit from low interest
rates were caught out by the surge in the franc, after
Switzerland scrapped its cap on the currency in January 2015.
The previous Social Democrat-led government pushed through a
law before an election in 2015 ordering banks to convert loans
denominated in Swiss francs into euros at their own expense,
imposing about 1 billion euros ($1.1 billion) of losses on them.
“Such a measure was necessary at the time to achieve a
legitimate goal of protecting the borrowers from the firming of
the Swiss franc,” Constitutional Court head Miroslav Separovic
Eight local banks had asked for a constitutional assessment
of the conversion law, saying the action did not fairly share
the costs and that the government had acted retroactively.
But Separovic said “a calculation of costs did not take into
account positive effects of conversion which improved the banks’
lending portfolio, while the banks also got a tax exemption on
the basis of conversion”.
The vast majority of loans and deposits in Croatia are
denominated in euros. Croatia’s central bank keeps the national
kuna currency in a tightly managed float against the euro.
Local bank association HUB said it was convinced enforced
conversion was not in line with European Union legislation and
obligations that Croatia accepted through international
“Such a legal solution does not exist in any other EU
state,” HUB said in a statement.
HUB did not say what further action banks could take, but
some have indicated they could seek international arbitration.
($1 = 0.9400 euros)
(Reporting by Igor Ilic; Editing by)