August 25, 2015 / 11:45 AM / 4 years ago

UPDATE 1-Croatia to convert Swiss franc loans into euros

(Adds PM’s confirmation, volume of loans, banks involved)

ZAGREB, Aug 25 (Reuters) - Croatia will convert loans denominated in Swiss francs into euros, Prime Minister Zoran Milanovic said on Tuesday, a step to bring relief to tens of thousands of Croatians who took debt in the Swiss currency.

About 60,000 Croatians hold Swiss franc-denominated loans, mainly taken out for mortgages during the 2000s, when many in central and eastern Europe were attracted by low Swiss interest rates. The volume of the franc-denominated loans is about 26 billion kuna, or 3.4 billion euros.

A strengthening of the franc has driven the cost of the loans sharply higher and governments across the region have been grappling for solutions.

“We will convert those loans into the euro-denominated ones, but we will also take into account not to put into an unfavourable position those debtors who opted for loans in euros from the very beginning,” Milanovic said.

According to the plan, whose details have yet to be made public, the costs of the conversion would be borne by the banks. Those losses would be recognised as a tax deduction.

Croatia’s centre-left cabinet, which faces a parliamentary election by early 2016, fixed the franc rate to the kuna at 6.39 for a period of one year in January, aiming to put a cap on the mounting debts while a lasting solution is found.

The current market rate is around 7.00 kuna per franc.

All main Croatian banks have franc-denominated loans in their portfolios, including UniCredit’s Zagrebacka Banka, Intesa Sanpaolo’s PBZ, Erste Bank or Raiffeisen.

$1 = 6.5649 kuna Reporting by Igor Ilic; Editing by Jan Lopatka, Larry King

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