ZAGREB, April 1 (Reuters) - Croatia’s Finance Minister Boris Lalovac urged commercial banks and holders of loans in Swiss francs on Wednesday to resume talks and work out a model to convert loans into euros as it was the best long-term option.
A proposal to convert loans into Croatian kuna had been opposed by the central bank because it would put pressure on the currency, he said in a ministry statement.
About 60,000 Croatians hold Swiss franc-denominated loans, mainly taken out during the 2000s when many in central and eastern Europe were attracted by low Swiss interest rates. Since then a strong franc has driven the loans’ costs sharply higher and governments across the region have been grappling for solutions.
Hungary and Poland have faced similar problems after citizens took out Swiss franc loans before the global financial crisis.
In a statement posted on the ministry’s website on Wednesday, Lalovac said the ministry had abandoned a proposal under which mortgage holders unable to service their monthly loans would become tenants in their current property with an option of buying it back in the future.
“I have told the banks that tenancy and buybacks are off and only the conversion models are an option,” Lalovac said in the statement.
He said he had preferred a conversion into Croatia’s kuna currency but was dissuaded by the central bank governor, who said it would put too much downward pressure on the kuna.
“So we settled on conversion into euros, taking into account two factors: the debt cannot be higher than the original loan or higher than the current value of property,” he said.
Adding to borrowers’ pain, six years of recession in Croatia have pushed down property values, meaning some citizens now owe more than their property is currently worth.
The banks, the finance ministry and the central bank started talks in February, after the government fixed the Swiss franc rate against its kuna currency at 6.39 for one year to ease pressure.
Udruga Franak, a group representing citizens with Swiss franc loans said on Tuesday it was quitting the talks. It accused the ministry, the central bank and lenders of stalling and said it would start mass protests this month.
“The minister expects everyone to return to the table, and the banks to come with their solution,” the ministry said in its statement.
“My proposal is conversion into euros. But I would like this to come from the banks and to be accepted by the Udruga Franak. They are the two private parties in this contract,” the statement quoted Lalovac as saying. (Reporting by Zoran Radosavljevic; Editing by Susan Fenton)