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Tag: Swiss franc

  • Conversion of Swiss franc loans, ruled as unconstitutional

    Conversion of Swiss franc loans, ruled as unconstitutional

    The law allowing borrowers to switch from Swiss francs to lei at the exchange rate valid on the date the loan contract was signed is unconstitutional, the Romanian Constitutional Court ruled on Tuesday. The Court President, Valer Dorneanu, said the most important aspect taken into account was a severe violation of the principle of bicameralism.



    Valer Doneanu: “The fact that the Chamber of Deputies, the lower chamber in Parliament, is the decision-making body in this case, does not mean that it may endorse a bill in any form they like. On the contrary, Deputies are bound to take into account the text endorsed by the higher chamber, namely the Senate. Furthermore, the Court found that the solution chosen by the Chamber of Deputies, that is, the conversion of Swiss francs to lei at the exchange rate valid at the time when the loan contracts were signed, is wrong and comes against all European directives.



    The Constitutional Court had postponed its decision twice already, in order to look more deeply into the matter. In October 2016, the Chamber of Deputies decided in a bill that loans taken out in Swiss francs should be swapped for national currency loans at the exchange rate valid when the contract was signed. The law was quickly brought before the Constitutional Court by the Government, and Dacian Ciolos, the Prime Minister in office at the time, explained that the Government had done that not because it opposed it, but rather for clarifications.



    According to central bank data, in January 2015 there were over 65,000 borrowers in Swiss francs in Romania, and by June nearly half of them had requested a conversion or rescheduling of their loans, as currency fluctuations had doubled their repayment amounts. At present, the Swiss franc accounts for roughly 4.2 lei, as compared to 2-2.5 lei in 2007-2008, when most of the Swiss franc loans were taken out. Swiss franc lending was encouraged at the time by the much better interest rates than the ones charged on loans in Euros or USD.

  • February 7, 2017 UPDATE

    February 7, 2017 UPDATE

    ADDRESS – In a Parliament address on Tuesday, Romania’s president Klaus Iohannis called on the left-wing government to find solutions to the crisis it caused with the ordinance on amending the criminal legislation, an ordinance they later withdrew. The head of state blamed the ruling coalition made up of the Social Democratic Party and the Alliance of Liberals and Democrats for having collided with a large part of society only a month after coming to power and reminded the large-scale protests triggered by the government’s decision. Iohannis pleaded for a responsible governing, predictable and transparent, and called on Parliament to draw up laws for Romania, not for a group of politicians with legal problems. He warned that unless the Social Democratic Party found a rapid solution to the crisis he would summon talks to settle the issue. At the same time, the president reiterated his decision to call a referendum, for the Romanians to have their say on the continuation of the anti-graft fight and on ensuring the integrity of public functions. The leaders of the ruling coalition accused the president of partisanship and of not playing his part as a mediator in society. On the other hand, the members of the parliamentary parties in opposition, the National Liberal Party, Save Romania Union and People’s Movement Party said that President Iohannis did nothing but express Romanians’ will.




    PROTESTS — The anti-government protests continued in Bucharest and other Romanian cities on Tuesday, for the 8th consecutive day. Protesters, who gathered in front of the government offices in smaller numbers than in the previous days, asked for the resignation of the leftist government. We remind you that on Sunday, more than half a million people protested in the capital Bucharest and in other cities against the emergency decree amending the criminal codes, in spite of the fact that the decree had been abrogated that same day. Also on Tuesday protests against the head of state were held in Bucharest for the third day in a row. The government has announced that for the time being it scraps plans to amend the criminal codes.




    RULING – Romania’s Constitutional Court ruled on Tuesday that that the draft law on the conversion of loans in Swiss francs into national currency is unconstitutional. The Constitutional Court had postponed several times a decision on this matter. The draft law adopted by the Chamber of Deputies on October 18, 2016, stipulated the conversion into the national currency of loans in Swiss francs at the exchange rate valid when the loan was contracted. The law was challenged at the Constitutional Court by the former government headed by Dacian Ciolos, who specified that he did that for clarification and not because he was against it.




    BUDGET – Parliament in Bucharest adopted on Tuesday the 2017 budget bill and social security bill. On Monday, Prime Minister Grindeanu underlined the budget contributed to raising the Romanians’ standard of living and was based on a GDP under 200 billion euros, an economic growth of 5.2% and a deficit of 3% of the GDP. The opposition parties’ amendments to the bills have been dismissed.




    MOLDOVA – The president of the Republic of Moldova, the pro-Russian socialist Igor Dodon discussed on Tuesday in Brussels with the European Council president Donald Tusk about the relationship between Chisinau and the EU. In a Facebook post Dodon said that he pointed out, during the meeting with Tusk, that two years since his country signed the Association Agreement with the EU the situation in Moldova has worsened. Dodon also said that in the case of a referendum on this matter, if people voted for the annulment of the agreement, he would respect their wish. The Moldovan president proposed, in Brussels, three-side talks among the EU, Moldova and Russia on trade. Igor Dodon is yet to meet the speaker of the European Parliament, Antonio Tajani, foreign policy commissioner Federica Mogherini, and NATO officials.


    (Translated by Elena Enache)

  • The Week In Review (October 17-22)

    The Week In Review (October 17-22)

    The Social-Democrats have filed a simple motion against Justice Minister Raluca Pruna



    Prime Minister Dacian Ciolos acknowledged the simple motion passed in Parliament this week against Justice Minister Raluca Pruna, saying however that the Minister should keep her seat in the Government. The Government spokesperson Liviu Iolu explained that MPs presented no objections regarding Minister Prunas term in office, but only related to some of her statements. In a simple motion entitled “Lies can kill, too filed in the Chamber of Deputies, the Social Democrats called for the resignation of Minister Raluca Pruna, after the latter said, in a recent meeting of the Superior Council of Magistracy, that she lied to the European Court of Human Rights regarding the funding allotted to Romanian penitentiaries. Before the vote, Raluca Pruna told Parliament:


    Raluca Pruna: “We should have a political and social consensus on strategic topics, which encompass several governance cycles. The time has come to look around and admit there are more and more citizens who know what kind of country they want and who can voice their criticism as regards the activity of lawmakers. An independent judiciary cannot be an underfunded judiciary with a precarious infrastructure, overloaded by notifications and pending cases, such as the Romanian judiciary.



    The conversion of Swiss franc loans into the local currency sparks controversy


    Many Romanians who took out loans in Swiss francs saw their rates double in January 2015 as a result of exchange rate fluctuations. On Tuesday, the Chamber of Deputies, Parliaments decision-making body, unanimously passed a bill on the conversion of Swiss franc loans into the local currency at the exchange rate valid at the time of the loan. The bill was initially intended to help people with low incomes that can no longer cope with their bank rates. In the meantime, however, the provision on the 50% debt ratio and the ceiling of 250,000 Swiss francs has been eliminated, so the bill now also applies to people who took out very big loans and who have no difficulty paying their bank rates. Political parties say the new bill corrects an injustice and that banks should rethink their approach in their relationship with clients. On the other hand, the National Bank of Romania says the bill is discriminatory because it only applies to people who took out loans in Swiss francs. The bill could thus set a dangerous precedent and that the many people who took out loans in euros may also demand the same rights, which would create major problems for the Romanian banking system. The National Bank governor Mugur Isarescu says theres also a risk that contractual discipline may become irrelevant as a result of such laws. In order to come into force, the bill on the conversion of Swiss franc loans also needs to be signed by president Klaus Iohannis.



    The vote count in the parliamentary elections may be subject to electronic monitoring


    Intense preparations are being made in Romania for the upcoming parliamentary elections of December 11th. On Monday, the interior ministry published a draft government decision on its website on the video and audio recording of the final part of the voting process. The recordings will be delivered to the Special Telecommunications Service and kept there for three months before being destroyed. It will be the first time that the vote count will be recorded, so as to eliminate all suspicions of fraud. Interior minister Dragos Tudorache has told prefects and local government representatives that the objective is to organise the least contested elections.

  • Solutions for the Franc Loan Crisis

    Solutions for the Franc Loan Crisis

    A natural occurrence in currency markets, exchange rate variations are paid special attention to when changes are sudden and substantial. This was the case early this year with the Swiss franc, and more recently with the US dollar. What are the explanations and, more importantly, the consequences of such developments? Who stands to gain and who stands to lose from this in Romania?



    In January, the Swiss central bank removed the cap on its national currency’s exchange rate against the euro, which pushed the Swiss franc to a level close to the European single currency, in a record-high appreciation of nearly 30%. The effect in Romania was significant. During the loan boom period, tens of thousands of Romanians were attracted by the stability of the Swiss currency and by the smaller interest rates, and contracted loans in francs, only to find themselves now unable to make the monthly instalments. They took to the streets and called on the government to step in.



    Several proposals were made, including the conversion of loans into the Romanian currency, or the extension of repayment periods. This week, the Government has discussed a bill regarding the conversion of franc loans into Romanian leu loans. Banks would offer a 15% reduction on the value of the Romanian leu loan resulting from the conversion, while the state would provide guarantees for half of the outstanding amounts. The bill covers clients with mortgage loans who have delays of less than 60 days in monthly payments and net incomes of around 670 euros at most. The Government originally intended to pass this piece of legislation as an emergency ordinance, but at the request of the Prime Minister, it was turned into a draft law.



    While the unexpected and substantial appreciation of the Swiss franc dominated the financial market early this year, as of recently the US dollar has grown strong against the Romanian currency. The increase is mainly due to the strengthening of the US dollar against the euro, as a result of the superior economic growth rate of the US and of the investor expectations regarding an increase of interest rates by the Federal Reserve. On Wednesday the latter took a further step towards the first increase of the key interest rate since 2006, but at the same time it downgraded its economic growth and inflation projections.



    In the latest monetary policy statement, Fed officials dropped the word “patient” with regard to increasing borrowing costs, which analysts view as a sign that the central bank is opening the door wider to an interest rate hike in the months to come.

  • The Swiss Franc Crisis

    The Swiss Franc Crisis

    Disgruntled by the soaring exchange rate of the Swiss Franc against the Leu and faced with difficulties in paying the monthly installments for their Swiss currency loans in due time, thousands of Romanians took to the streets in Bucharest and other large cities, calling for legislation that should allow for the conversion of all foreign currency loans to the historic rate plus 20%. The National Authority for Consumer Protection has argued in favour of a solution where both loan takers and banks should share in the risks. Here is the head of this authority Marius Dunca with more details.



    Marius Dunca: “There is always talk about the risks banks expose themselves to, such as insolvency and other arguments in their favour. In that respect, I hereby dare all banks and financial institutions involved in the management of the Swiss Franc crisis answer the following question: what solutions are you offering to your clients who risk defaulting on their payments, clients with good creditworthiness prior to the crisis? What kind of solutions do you have in mind for the entire crediting term, not just on short term?”



    Speaking on a private television station, Finance Minister Darius Valcov said he expected the National Bank and commercial banks in general to get more involved in this matter, feeling that payment rescheduling remains the best possible solution.



    Darius Valcov: “I would like to see the National Bank getting more involved in this issue, all the more so as it has the means. I don’t believe in setting the exchange rate at a historic level, by means of Government Ordinance or by means of a law adopted in Parliament. Everyone with basic knowledge of economics understands the risks befalling Romania, if the worst comes to the worst”.



    The rescheduling of payments for Romanians with loans in the Swiss currency would entail a drop in the monthly installments down to 35% in the first two years. In the ensuing period loan takers would benefit from a tax deduction of up to 55 euros per month, with the state stepping in to cover these costs. In turn, the National Bank and commercial banks have called for case-specific solutions, arguing that the solution to convert foreign currency loans would go against the Constitution and incur significant losses. Over 75,000 people in Romania have taken out Swiss currency loans with a total of 14 lending institutions.


  • International Finances and Personal Insolvency

    International Finances and Personal Insolvency

    A joint mission of the International Monetary Fund, the European Commission and the World Bank has come to Romania for their third assessment of the 4-billion euro precautionary loan agreement, signed with Bucharest in 2013. Until February 10th the international experts will discuss with representatives of the Government, the Central Bank, business people and trade unions about the recent economic developments and the reform priorities.



    According to economic analysts, issues like a revised calendar for the listing of state-owned companies, the stage of the privatization process and a fiscal code that should stay unchanged for the following five years are also to be discussed.



    High on the meeting’s agenda is the impact of the soaring Swiss franc on the financial sector and the Romanian National Bank’s policy, as well as the recent decision of the European Central Bank to initiate an extensive quantitative easing scheme. The international lenders’ visit to Bucharest takes place against the background of efforts by the Romanian Government, Parliament, National Bank, commercial banks and people with Swiss franc loans to find solutions to the crisis generated by the Swiss currency’s historic appreciation against the Romanian leu. The over 75 thousand Romanians who have contracted loans in this currency, have found out their rates are now about 20% higher.



    Before coming to Bucharest, the IMF, European Commission and World Bank experts have voiced concern, in a letter sent to the Romanian authorities and the National Bank of Romania, at the possible conversion of hard currency loans into national currency loans, against the currency exchange rate at the time when the loans were contracted. This measure might affect the financial system’s stability, the international lenders have warned. They have also pointed out that the personal insolvency law, discussed these days in Parliament, needs to be preceded by impact studies, consultations with all parties involved and the assistance of other EU states where similar laws are in force.



    Romanian lawmakers want this bill adopted as soon as possible, for fear that people’s defaulting on their loans might turn into a social problem. Economic analysts however, say this is not the first time when IMF representatives are coming to support the banks and postpone the adoption of this bill. The first draft law on personal insolvency was tabled in 2010.

  • Swiss Francs, Romanian Loans

    Swiss Francs, Romanian Loans

    Last Thursday’s decision by the Swiss Bank to abandon the cap on the value of the Swiss currency against the Euro, introduced three years ago, saw the franc soaring, which affected several Central and South-East European countries, Romania included. For the over 75 thousand Romanians who have contracted loans in that currency, the last few days have been a nightmare. They have found the payments they have to make are about 20% higher than last week. The Swiss franc has kept growing constantly on the domestic currency market.



    Meanwhile, the Government, the National Bank of Romania, commercial banks and political parties are seeking solutions to help the debtors. Only two of the six Romanian banks that offered 90% of the Swiss franc loans came up with temporary solutions. One of them gives clients the option of an up to 1.5% reduction of its interest on Swiss franc loans, for three months, while the other decided to keep a fixed exchange rate of 3.80 Romanian lei for the Swiss franc, for 90 days, for the clients who have loans in that currency. Finance Minister Darius Valcov suggests either a broadening of the scope of last year’s government ordinance on rescheduling the repayment of loans for low-income clients, or renegotiations between the Romanians with Swiss franc loans and their commercial banks. The latter option is also backed by the central bank.



    Political parties have also come up with suggestions. The Social Democratic leader, Prime Minister Victor Ponta, has called for consultations with all parties to identify a legislative solution, after talks with the National Bank and private banks. The leader of the People’s Movement Party in opposition, Elena Udrea, has proposed that the Government should pass an emergency ordinance allowing the people who have contracted loans in foreign currencies to swap them for national currency loans, at the currency exchange rate at the time when the loan was contracted, plus/minus 20%. In turn, the Liberals in opposition have called for a special parliamentary session to pass an individual insolvency bill, as they say Romania is one of the few European countries lacking such a law.



    The Chamber of Deputies has decided to submit the draft law to the Judicial Committee on Wednesday, and to hold a special session shortly after the Committee has drawn up its report. On Wednesday, the Budget Committee will discuss the topic with representatives of the National Bank of Romania.