Romania’s Swiss Franc Mortgage Issue

• New Europe Investor
• July 13, 2015

A solution has yet to be found in Romania’s Swiss franc mortgage issue. 

The height of the Swiss franc mortgage market in Romania between 2006-2008, saw customers take out mortgages at 2.24-2.32 Romanian lei to the Swiss franc.

Earlier this year when Switzerland removed its currency peg, the lei saw a huge decrease in value. It is currently hovering around 4.2, with mortgage holders having to pay higher monthly repayments on higher mortgage values, but on the same property.

As of the the beginning of 2015, 65,000 Romanians had mortgage in Swiss francs.

Central Bank Views

 

The Central bank Governor, Mugur Isarescu said the government should avoid a policy that exchanges the mortgages back to Romanian lei, that saddle the banks with the conversion cost.

He estimated the losses to Romanian banks to be 3 billion lei (€680 million), creating serious problems within the country’s banking system.

He said, “The best approach is to let things settle down and try to manage them, not intervene.” He added that those struggling to pay should be helped on a case by case basis. Record low interest rates in Romania mean “there is a good environment” to tackle it in such a way.

Swiss Franc and Euro Mortgages

 

Should the country take the policy of converting all Swiss franc and euro mortgages into local currency as has been previously discussed, it would cost 9.8 billion lei (€2.4 billion). This is the equivalent of 1.4% of the Romania’s GDP and should the banks have to pay for the losses to customers, it could be a politically dangerous move.

The debate goes on in Romania as to what to do regarding the Swiss franc mortgage issue.

In Poland where 500,000 people hold Swiss franc mortgages, it is set to become a divisive issue between the two leading parties in the country’s general elections in October.