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Croatia moves to convert Swiss francs loans into euros

The Croatian government Thursday backed legal changes to convert loans taken in Swiss francs into euros in a bid to help more than 50,000 struggling borrowers affected by the currency's abrupt surge this year.

Amendments to consumer credit laws, which have to be adopted by the parliament where the centre-left government has a stable majority, would come into effect by the end of the month, Finance Minister Boris Lalovac told a cabinet session.

"I propose that the banks start immediatly preparing ... to be able to give to citizens within a 45-day deadline calculations of new (loan) instalments" for each of some 53,000 loans, he said,

The conversion into euros would be made on the initial principial denominated in Swiss francs and it would be optional. It would be made at the value of the franc-euro exchange rate of the day the loan was granted, and the interest rate switched to that on euro loans.

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"Croatia's banking sector will not be jeopardised," Lalovac said, stressing it was well capitalised.

"We have to show that Croatia is ruled by the government and not by the banks."

The decision was made as Croatia is preparing for parliamentary elections later this year, most likely in November, while Prime Minister Zoran Milanovic's SDP is behind the conservative opposition in surveys.

Foreign banks, which control some 90 percent of Croatia's banking market, are unhappy with the government's proposals.

Five foreign banks -- Erste Group Bank, UniCredit, Sberbank, Raiffeisen Bank International and Hypo Group Alpe Adria -- in a joint statement voiced concern and said the move would violate European law.

The banks are to bear the costs of the conversion, estimated by the government at up to six billion kunas (794 million euros, $891 million), although the central bank believes it could be much higher.

After the franc shot up in value in January the Croatian government fixed for a year the rate for payments of franc-denominated loans at 6.39 kunas to the franc.

That was the exchange rate before the franc surged 16 percent against the kunas, and Milanovic at the time pledged a lasting solution over the issue.

More than 100,000 people in Croatia, like in several other central European countries, took out loans denominated in Swiss francs in order to benefit from lower interest rates.

Almost three-quarters of the loans were to buy homes and some 53,000 are still outstanding.

Croatia joined the European Union in 2013, but has yet to adopt the euro.

ljv/rl/boc