ZAGREB (Reuters) - Croatia’s Constitutional Court ordered a retrial in a case over Swiss franc-denominated loans on Tuesday, saying the Supreme Court’s ruling in the case was not sufficiently well explained.
Households and firms across Croatia and eastern Europe took out Swiss franc mortgages in the 2000s to benefit from low Swiss interest rates, only to be caught out by a surge in the franc, particularly after Switzerland scrapped its cap on the currency in January 2015.
In an earlier verdict the Supreme Court ruled that Croatia’s banks, some 90 percent of which are owned by parent institutions elsewhere in the European Union, failed to sufficiently explain to clients how variable interest rates work but did not fail to explain the currency risks entailed in taking foreign currency loans.
But the Constitutional Court said the Supreme Court’s ruling did not properly explain its own assessment of these two aspects of the loans.
Croatia decided in late 2015 to enforce conversion of all Swiss franc loans to euros at the rate that was in force when the loans were granted, with the banks bearing the cost of exchange rate fluctuations. The costs have been estimated at about 1 billion euros ($1.04 billion).
After that several banks filed separately for an assessment of whether the legal changes regulating the enforced conversions were in line with the constitution. The conversion law acted retroactively and did not fairly share the costs, they said. The court’s decision is still pending in that case.
Most loans in Croatia are denominated in euros. The central bank keeps the national kuna currency in a managed float regime, allowing it to move within limits against the euro.
($1 = 0.9660 euros)
Reporting by Igor Ilic