October 25 (SeeNews) - Romania's government said on Tuesday it is challenging in the Constitutional Court (CCR) the Swiss franc loan conversion law adopted by the parliament, which aims to help Swiss franc borrowers convert their mortgage loans into local leu currency at historical rates.
"The fact that we have sent this law to the Constitutional Court does not mean that we are against it. The government will take all necessary measures for the law to protect the people who actually cannot pay their loans, but not speculators," prime minister Dacian Ciolos said, according to a statement posted on government website.
The government said that it sees the need to support those people but the law adopted by the Parliament in its present form exceeds the support that the government can take responsibility for.
The CCR will consider the constitutionality of the law on November 23.
According to Romania's central bank 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).
On October 18, all 248 MPs present in the Chamber of Deputies, the lower house of Romania's parliament, voted in favour of the law. The upper chamber, the Senate, passed the bill earlier this year
The bill has to be approved by president Klaus Iohannis to enter into force.
According to the Romanian constitution, the CCR can be asked to review the laws before they are promulgated by the president, the government, or one of the presidents of the parliament's two chambers.
After the CCR reviews the law, amendments will be made and if none of the above notifies the Court again, the law can go to the president for promulgation.
The law initially set a ceiling of 250,000 Swiss francs ($255,125/228,361 euro) for the loans that will be converted at the exchange rate at which they had been taken but the limit was scrapped before the final vote.
Thousands of home-buyers in Romania had taken out Swiss franc-denominated mortgage loans over the past 15 years, attracted by low interest rates.
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 Romania's central bank.
Most banks in Romania have announced they will cut interest rates or freeze the currency exchange rates for their clients with Swiss franc-denominated mortgage loans in a bid to lower repayment costs.
Fitch Ratings recently said that the Swiss franc loan conversion bill will have no immediate rating impact on banks in Romania once the legislation is implemented.
"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.
(1 euro = 4.4909 lei)