Slovenian lawmakers will vote on a measure on Monday forcing banks to repay hundreds of millions of euros to foreign currency borrowers, with lenders warning the move would hurt their operations in the Alpine nation.
Slovenia was one of many Eastern European countries where consumers seized the opportunity to borrow at low interest rates more than a decade ago in currencies such as the Swiss franc, to deal with a blow when exchange rates moved against them during the financial period. crisis.
In response, several governments have imposed limits on repayment exchange rates or converted loans into local currency.
Ljubljana has yet to introduce such measures, but the bill before lawmakers would put a retroactive cap on the extra burden borrowers faced, forcing lenders to pick up the costs instead.
Banks should redefine repayment terms and cap foreign exchange losses for borrowers at 10%, reimbursing them for all additional costs incurred since 2004.
In a letter this month, the banks told the government and European institutions that they expected a “negative impact on the profitability, capitalization and future lending capacity of the banking sector as a whole” if the measure was approved.
“We urge you to act within your powers. . . securing the Slovenian economy [operates] under conditions consistent with EU principles,” the banks wrote in the letter. “Legally valid contractual agreements [must] not be subject to legislative intervention.
The bill calculates that it could cost banks a total of €300 million to compensate borrowers for currency losses beyond the 10% limit. The banks predict the sum could be significantly higher and have said they will go to local and European courts to fight the obligation.
The bill threatens banks with penalties and potential revocation of banking licenses if they fail to repay borrowers on time. Lenders and regulators fear it will undermine the country’s financial system.
The banks concerned are the Hungarian OTP, the Austrian Addiko Bank and Erste Bank, the Russian Sberbank and the Italian UniCredit.
Slovenian banks are hopeful the country will not go ahead, stressing that this would contradict an opinion issued by the European Central Bank, which called the bill problematic late last year.
The ECB warned of “substantial pressure on the income of credit institutions” and said the bill as drafted could lead to “deterioration in foreign and domestic investor sentiment and confidence in the system, due to a perceived increase in legal uncertainty and country risk”. ”.
This was the ECB’s opinion on the draft law and was not binding. If the Slovenian bill is adopted, the European Commission may decide to challenge it in court. The ECB declined to comment.
The bill was first introduced last year by the speaker of Slovenia’s upper house of parliament and made unexpected progress this month. Banks fear politicians will want to approve the bill to create a boon for consumers ahead of the April election.
The Frank Association, a consumer group which supports the bill, said it was “the result of the banks’ persistent evasion of responsibility for their unfair business practices in the past and their unwillingness to settle with the borrowers”.
“Passing the law can only have positive effects on the economy,” he said, adding that similar laws, for example in neighboring Croatia, were reducing household debt and increasing consumption.