Plan to help Croatians with Swiss franc mortgages

Zagreb

CROATIANS with Swiss franc mortgages they can no longer afford may be obliged to transfer their properties to the state under a proposal from the country's banking association.

The banks, the finance ministry and the central bank will meet next week to discuss the plan, under which such mortgage holders - caught out by sharp gains in the value of the franc - would become tenants in their current properties. "This would be a solution for those who have lost their job or suffered a considerable reduction in income and have a Swiss franc loan for a property in which they live. The banks would cover all the costs of debt relief," Zoran Bohacek, head of the HUB association of local banks, told reporters.

The mortgage holders would have the option of buying back the properties from the state in the future at a discounted price. Alternatively, they could give back the keys to the lender bank in exchange for a debt write-off.

Swiss franc loans became popular across central and eastern Europe in the 2000s because of their low interest rates, but a soaring franc has made them unsustainable for many.

In Hungary, the government has made banks pick up the cost of converting the loans into local currency, while Poland and Romania are also considering ways of helping borrowers.

Croatia's government last month fixed the Swiss franc rate against its kuna currency at 6.39 for one year to ease pressure on all franc debtors pending a lasting solution.

About 60,000 Croatians hold loans in Swiss francs, mostly for housing, and the country's total stock of Swiss franc loans is about 27 billion kuna (S$5.41 billion) or a little under 8 per cent of gross domestic product.

The franc mortgage holders have also been hit by a declining real estate market, meaning that some owe more than the value of their property. REUTERS