February 7 (SeeNews) - Romania's constitutional court (CCR) said on Tuesday that the law, which aims to help Swiss franc borrowers convert their mortgage loans into local leu currency at historical rates, is unconstitutional.
CCR chief Valer Dorneanu said in a televised statement that one of the reasons for the rejection of the legislation was the difference between the bill approved by the Senate and the final version approved by the lower house.
On October 18, all 248 MPs present in the Chamber of Deputies, the lower house of Romania's parliament, voted in favour of the Swiss franc loan conversion law.
Also, CCR said it does not approve of the provision that Swiss franc credits should be converted into leu at the exchange rate valid on the day when the credit was granted.
At the end of October, the technocrat government led by Dacian Ciolos challenged the law in a bid to make sure it will protect borrowers who cannot repay their loans and not speculators.
The law has to be approved by president Klaus Iohannis to enter into force.
According to the Romanian constitution, the president, the government, or one of the presidents of the parliament's two chambers can ask CCR to review laws before they are promulgated.
After the CCR reviews the law, amendments will be made and if there are no further objections, the legislation can go to the president for promulgation in the Official Gazette.
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 that limit was scrapped before the final vote.
Thousands of home-buyers in Romania have 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.
Romania's central bank set its reference exchange rate at 4.43632 lei ($1.1/0.98 euro) per Swiss franc on Tuesday, compared to 3.7415 lei on January 15, 2015.
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.
According to Romania's central bank BNR, if all outstanding CHF loans to private individuals are to be 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 Ratings said in October 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 = 4.4916 lei)