Banks make plans for tackling impact of Swiss franc’s growth on borrowers

As Greeks with loans in Swiss francs await an intervention from the next government, Greek banks are already attempting to contain their clients’ losses by reducing the amounts paid in repayment installments ahead of the upcoming increase, which is expected to reach at least 10 percent.

After the abrupt change in the policy to keep the euro to a floor of 1.20 francs on January 15, the exchange rate ranged between 0.98 and 1.01 euros/Swiss franc, affected also by the announcement of the European Central Bank’s quantitative easing decision.

Banks are appealing for calm, explaining to borrowers that any move toward changing the terms of their loans would mean they will take losses. Since the start of last week Eurobank – the lender which is said to have the greatest exposure in loans to the Swiss currency – has ordered staff to contact some of its 30,000 clients and propose the adjustment of their monthly repayment installments to the levels before the cap was removed in an attempt to reduce the impact of a major increase in installments and to pave the way for any governmental interventions.

Other banks have resorted to similar moves, as they too are tackling the soaring of the Swiss franc with the adjustment of monthly installments back to the levels of last month. They are also readying tools for the future, as the reduction of monthly installments will impact on the unpaid amount.

The margin for a legislative initiative is not clear, given also that the only precedent in this direction has been in Hungary. In 2010 Budapest forced its banks to turn their mortgage loans in francs into the local currency.

Any initiative by Greece, which is a component of the Eurosystem, would require the approval of the European Central Bank. Given that the banks are now directly supervised by the ECB, any such initiative would have to be accompanied by measures to contain the banks’ losses.