January 30, 2015 / 11:26 AM / 5 years ago

UPDATE 2-Romania's central bank questions help for Swiss franc debtors

* Good time to convert loans at market rates: central bank

* Conversions at historic rates would cause heavy losses

* Says banks may freeze exchange rate for 1 year

* Says moral hazard could spread to euro loans (Adds quote, details, background)

By Luiza Ilie

BUCHAREST, Jan 30 (Reuters) - Romania’s central bank rejected calls on Friday for a broad solution to cushioning Swiss franc borrowers, saying proposals such as intervening to strengthen the leu currency would hurt economic growth.

The remarks by Governor Mugur Isarescu appeared designed to caution lawmakers against hurtling into unrealistic measures or putting pressure on the central bank to act, after the franc’s sharp appreciation in January threatened hundreds of thousands of borrowers across Central and Eastern Europe.

Isarescu said now was a good time for banks to offer Romanian holders of franc loans the chance to convert them to the leu at the current market rates, given low inflation and interest rates, but warned of “moral hazard” if policymakers offered unrealistic solutions to the franc’s surge.

Swiss franc loans became popular in the early 2000s for their low interest rates but currency rates have become highly unfavourable for many borrowers.

Hungary’s government made banks pick up the cost of converting the loans into local currency and the Polish and Croatian governments are considering ways to help borrowers, although Poland has ruled out a forced conversion.

Mortgage payments are set to soar after the Swiss central bank abruptly removed its cap on the franc’s value earlier in January, although the impact is expected to be lower in Romania than in some of its wealthier neighbours.

Romania’s government has proposed extending an existing debt relief scheme launched last year, which helps the lowest earners.

Individual lawmakers have also put forward solutions such as letting borrowers convert their loans at the rate at which they took out the loans. That would cost banks 5.7 billion lei ($1.5 billion) and mean that three or four banks would need substantial capital infusions, Isarescu said.

“Most outside shocks are like earthquakes,” he said. “The best approach is to let things settle down. It’s not good to work with strong emotions and in haste.”

The central bank has proposed that banks adopt individual solutions to helping their customers, such as a temporary cut in interest rates on the loans. Isarescu said some banks were looking at proposals to freeze the exchange rate for up to one year to levels before the franc’s surge.

“You can’t ask a bank to give social protection. The bank pays taxes, which go to the budget,” he said.

A quarter of Romania’s franc borrowers hold loans worth less than 4,000 francs while another quarter have loans worth more than 47,000. “You cannot apply the same solution” for both these groups, Isarescu said. ($1 = 3.9147 lei) (Writing by Matthias Williams; Editing by Jeremy Gaunt/Ruth Pitchford)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below