The whole truth about loans in Swiss Francs

Posted on 30 Aug 2018, by Savvas Savvides

Were you told the truth by the Bank?

Did they explain ...?

Or did they merely say to you:   "Sign here"?

The Swiss Francs loan issue is not only of concern in our country, but was raised at a European level, as evidenced by the countless pending cases, with the result that this matter attracts a high degree of interest.

The essence of court rulings of the European Court of Justice is the need for borrowers to be informed of the risks involved in foreign currency loans.

There is a substantial number of cases where borrowers have paid the original loan amount and the banks are claiming extraordinary returns from their bank charges.

The need for legislative regulation for Swiss Francs loans is evident. In legal terms, legislation is not prohibited, however, this may conceal other risks, and in particular in countries, such as Cyprus, which are open to ‘crash tests’. 

Alternatively, there is a judicial route for the correction of financial losses that result from the risks of foreign currency loans. The best-case scenario would be for banks to offer a risk-sharing solution with less liability to the borrower, and for cases to be settled out of court.

We would characterize the banks’ damage as indiscernible in contrast to the borrowers which have suffered irreparably from their financial losses, a fact which is evidenced and demonstrated in the series of events within the halls of the European Courts.

The questions which are routinely asked in the hearings on almost all Swiss Francs loans are whether by changing the exchange rate from Euros to Swiss Francs it was only the borrowers that suffered financial losses, if a part of this loss affected the banks which provided the loans and, finally, if the bank profits were affected,

The answering of these questions is provided by the Central European Bank itself, which 'obligated' the banks transacting in foreign currencies, including the Swiss Franc, to carry out these actions, while at the same time being fully aware of the risks of hedging loans issued in Swiss Francs.

It has to also be mentioned that on that 'gloomy day' for borrowers throughout Europe, on 15 January 2015, when the Central Bank of Switzerland undertook to lift the Euro/Swiss Franc locked rate limit, the banks were informing the European Central Bank that they were covered (had hedge) under these types of situations.

It is notable that the IMF had informed the banks in good time of the imminent revaluation of the Swiss Franc and it was for this reason that the European Systemic Risk Board was established.  The Council stated verbatim: 'In some Member States of the Union it has been observed that there has been an increase in the granting of loans in foreign currency to borrowers which do not have hedging to foreign currency risks.’

If the credit institutions had provided (as they should have) protection to borrowers by hedging the exchange risk, as they had done, then there would not have been the problems that are faced today, between both the borrowers and the banks

Consequently, the borrowers must obtain accurate and detailed information regarding the consequences of a loan contract in a foreign currency. In particular, the borrowers are exposed to certain exchange risks which may result in economic hardship and find themselves unable to withstand the currency depreciation against their income. Therefore, the bank must reveal the potential rate fluctuations which include the risks involved, especially where the borrowers do not receive their income in a particular foreign currency.

The content of this article intends to provide a general guide to the subject matter. Specialist advice should be sought on each particular case.

For any further information, please contact Mr Savvas Savvides at savvas.savvides@kyprianou.com or telephone 00357-26930800.

Lawyer, Director and Partner of the Paphos Office of the Law Firm, Michael Kyprianou & Co. LLC.