After Hungary and Poland, the exotic Swiss franc loan frenzy is about to spread to Romania. Two banks, OTP and Porsche Bank, are betting on the allure of the interests, which are visibly lower for the loans in francs compared to the euro, to work their way onto the market.
Since October 2005 when they first launched retail products, the Hungarians at OTP introduced the Swiss franc lending offer, which comes with a 6.5% interest for mortgage credits (4.99% promotional interest at the moment).
The Austrians at Porsche Bank, which specialise in car loans, launched a credit in francs with a 6.95% interest (annual effective rate starting from 8.36%). At the same time, the market offers mortgage loans in euros at interests of 7-9.5%, while the car loans in euros see interests ranging from 8.5% to 10.5% a year.
Before making any analysis, the new products in Swiss francs are getting the attention of everyone because of the lower interests than those of the standard lending products denominated in euros, let alone those in RON.
The experience of the neighbours shows the magnet of lower instalments works flawlessly, even on markets with a much narrower interest spread, regardless of the exchange rate or interest rate risk.
The direct exchange rate risk is low for the banks, and is covered by market instruments, yet the cost of a possible RON depreciation is transferred upon the customer entirely, who is not covered in any way. In case of a longer exchange rate adjustment, the quality of the credit portfolios of the banks will also stand to suffer.
Beyond the exchange rate risk, the interest rate risk is not something easily overlooked, seeing as the benchmark interest rate for the Swiss franc went up slightly in March and the market expects the trend to continue.
The increase is directly transferred to the costs the client has to bear. Even so, the credit in Swiss francs remains more competitive than the credit in euros, with the repayment effort possibly to become more difficult if a depreciation of the RON overlaps a rise in interest.
Since banks transfer the exchange rate risk on the customers, the repayment effort may substantially increase in case of a RON depreciation, which can end up hurting banks, too that will find it impossible to get their money back.
“To a client that collects income in the domestic currency, but has to pay instalments on a loan in foreign currency, the currency exchange process cannot be avoided, regardless of whether they sell RON for Swiss francs or for euros. In the end, a decision should be made about which exchange rate is more prone to depreciation. We cannot make a forecast on the trend of the exchange rate, but we can take into account that the Swiss franc/euro exchange rate has been stable over the last 7 years,” says Frigyes Harshegyi, OTP Bank Romania”s chief executive.
The central bank of Hungary has found that many customers of commercial banks prefer the loans in Swiss francs, even though the interest rate is only one percent lower. razvan.voican@zf.ro