October 13 (SeeNews) - A draft law now before parliament, allowing Romanians to convert their Swiss franc (CHF) loans into local currency, will have no immediate rating impact on the country's banks once the legislation is implemented, Fitch Ratings said on Thursday.
"This is because CHF loans represent a negligible portion of overall lending at most of the banks rated by us and, where CHF portfolios are larger, sufficient reserves have been set aside to absorb potential conversion losses," Fitch said in a statement.
The draft law is expected to be passed by Romania's parliament next week after Tuesday's voting session was suspended due to a lack of quorum. The proposed law provides for all loans of up to 250,000 Swiss francs ($255,125/228,361 euro) to be converted into Romanian lei at the exchange rate, at which they were taken.
According to the ratings agency, the law will not immediately affect bank ratings, but it is another example of how the legislative framework is increasingly moving toward debtor-friendly measures, protecting consumer rights to the detriment of banks.
"Data published by the Romanian Central Bank (BNR) says that the average debt service/income ratio for CHF mortgage borrowers was high at 60%, and 12.9% of CHF-denominated mortgages were non-performing at end-2015," Fitch said.
According to BNR, if all outstanding CHF loans to private individuals are converted at the exchange rates prevailing at the date when the loans were originated, the cost for the banking sector would reach 2.4 billion lei ($587 million/532 million euro).
Fitch said that this figure could well come in below the estimate, as it does not take into account any reserves already set aside by banks against the CHF portfolios.
"Exposure is not evenly distributed, but all banks rated by us either have negligible exposure to these portfolios or have created sufficient reserve buffers to ensure they can absorb any exchange rate losses arising once conversion legislation is implemented".
Fitch gives the example of Romanian lender Banca Transilvania, which currently has a BB/Stable rating, which has already taken a proactive stance and offered its retail CHF mortgage borrowers the option to voluntarily convert loans on favourable terms.
"Standalone Viability Ratings assigned by us to Romanian banks - Banca Comerciala Romana S.A. (BBB/Stable), BT and UniCredit Bank S.A. (BBB/Negative) - are in the 'bb' range, indicating speculative credit quality, driven predominantly by weak asset quality and the challenging operating environment," the ratings agency concluded.
Thousands of home-buyers in Romania took out Swiss franc-denominated mortgage loans over the past 15 years, attracted by low interest rates offered by local banks for these type of credits.
On January 15, 2015, the Swiss National Bank decided to scrap a cap against the euro it introduced in September 2011. Following the decision, the Swiss franc appreciated sharply. Its exchange rate was set at 4.43632 lei ($1.1/0.98 euro) on Wednesday from 3.7415 lei on January 14, according to data from BNR.
(1 euro = 4.5059 lei)
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