Question: Hi, could you specify if this bill will affect EUR and CHF loans and if it is likely to be approved pls? Looks like it to me
The direct impact of this specific bill is fully predictable, since it refers to existing loans only. It breaches the non-retroactivity principle in this regard, but this has not prevented the government and a group of lawmakers from backing versions of this bill. This (predictability of impact) was not the case with the debt discharge bill, which has been subject of fierce disputes between lawmakers and central bank, while the quantitative evaluations were not high on the agenda. This time, we have a specific loss that has to be shared (or not) between banks and debtors.
In early 2015, the size of this loss was estimated at €1.3bn, or 0.8% of GDP, and it would be incurred 100% by banks for the conversion at historic XR. In the meantime, however, some banks have already converted the CHF loans under own programmes (such as Banca Transilvania, very successful programme given the discount, and BCR).
But there are also indirect effects. The bill would come after another controversial bill [on debt discharge], further deteriorating the credibility of the lawmakers and the regulatory predictability in general. The debt discharge bill will soon face Constitutional Court's ruling and this might play a role in the endorsement of other bills on this topic -- the forex loans conversion bill included. In case Court rules against the debt discharge bill on grounds of retroactivity, there's a big problem with the forex loans conversion bill as well. Please note that a third law on this topic, of personal bankruptcy, was already enacted and will come into force this December.
Particularly after part of the CHF loans were already converted, the impact of the forex loans conversion bills looks not a systemic risk for the local banking system. Shared with debtors, it could amount to a quarter of banking system's profits [€260mn in Q1] or so. But it would still be a significant risk of credibility. Inter alia, the deputies have voted 5% cut in the social contributions recently, visibly against government's recommendations. The cut needs senators' endorsement, but it says a lot about the responsibility of the lawmakers and their drive toward cheap votes at the cost of sustainability.
In regard to whether the bill is likely to be endorsed by lawmakers, there are some elements to be considered. First of them, the timing. It will probably not be endorsed quickly, before the summer recess. After the recess, MPs will work part-time, ahead of the general elections. There is no robust support for the bill, in terms of PR. The bill has been already discussed for years and further delays will make it less relevant [people will have dealt with the issues one way or another in the meantime]. Secondly, the history. the debt discharge bill has been drafted, discussed and endorsed quickly. Superficial debates, lots of petty politics. It is unclear whether the new bill will be promoted at the same speed. The MP having promoted the debt discharge bill started campaigning, but the timing does not help him. Furthermore, the authors of the versions of the bill have not been successful so far in promoting their versions.
Given the precedents, it not impossible that the conversion bill be eventually endorsed. It is no more inappropriate than the debt discharge bill. It is rather less likely (to see it endorsed), particularly on short term (given the timing and the coordination among those who drafted/proposed the bill) -- and the time is an important ingredient here. If eventually endorsed, the impact will not be dramatic -- particularly if shared with debtors and diluted by the debt discharge bill and personal bankruptcy bills, likely to have been invoked already by some debtors by that time.