Moody’s has recently made warnings and caution regarding the dangers involved if the Parliamentary Committee on Financial and Budgetary Affairs follows the report held out by the Cyprus Central Bank (“CBC”) which seeks solutions in converting all non-performing mortgaged housing loans from CHF to Euro currency; reason being that by doing so, this will in turn translate to a EUR.250 million loss for Cyprus Banks.
Such unprecedented loss by the Cyprus Banks (mainly Bank of Cyprus, Alpha Bank and Piraeus Bank of Cyprus) will inevitably be the outcome of a legislative Parliamentary reform which will allow the consumers to pay-off their housing loans by recalculating the current outstanding balance at the CHF’s buying rate when first entered the loan instead of the given selling rate when installments where paid and/or became due and/or at the current selling rate which would be applicable should a conversion into Euro currency was made today without taking into account CHF’s denomination next to the Euro. On top of this development, if such a reform is enacted through Parliament, it would also lead to the current banking-loan reconstruction proceedings that are taking place to be delayed even further, resulting in further strategic delays of payment by the consumers who own these non-performing housing loans.
What these folks seem to forget is that there is already a Judgment in place by the ECJ on the subject brought forward by a Hungarian Court for a couple (non-sophisticated consumers) that could not keep up with its mortgaged housing loan installments in CHF due to the currency’s denomination next to the Euro and it was called to pay off the loan’s installments at the currency’s buying rate when first signed the loan agreement instead of at the currency’s current selling rate. This Judgment has already been interpreted and implemented in similar cases by Greek and Spanish Courts in interim security costs applications and is expected to be followed as a European Guideline by all Member-State national courts. Bottom line is that whether Parliament goes through with this reform as an amendment to the legislation or not the consumers who borrowed in CHF are most likely liable to 35-40% less of what shows on their current outstanding balance sheet.
The actual question that needs to be addressed however is the following: For the purpose of calculating the current outstanding balance today in Euro currency, how will the paid installments be treated? Will they be re-calculated and set-off as being paid by taking into consideration the currency’s buying rate when first entered the loan agreement (retroactive effect) or calculated as being paid at the given currency’s exchange rate at the date the installment was due and payable?
This critical question needs to be addressed and answered by CBC as soon as possible as it implicates the actual amount that the Cyprus Banks will have to write-off from their CHF housing loans which may result in much bigger loss than EUR.250 million as calculated by Moody’s. In such a turn of events, Cyprus Banks will suffer unsustainable losses that may threaten their re-capitalisation needs putting them to bed once and for all when they have just merely managed to wake up from the March 2013 deposits’ haircut nightmare.