Loans in CHF: Yet another banking sector scandal?


By George Mountis and Costas Zeniou *

Swiss franc denominated loans started blooming in Cyprus in 2006, when the Republic was a candidate for euro area membership. At the time, Swiss franc loans lured in consumers on the premise of a significantly reduced cost of borrowing.

Around 11,000 of borrowers will be affected by the Parliamentary committee of Finance should they reach a decision on the CHF loans. Currently borrowers in Swiss franc have seen their loans inflate as a result of the Swiss franc gaining significant strength against the euro. Currently one euro trades at less than 1.1 Swiss francs, whereas some borrowers have borrowed at rates over 1.6.

On September 21st, Members of the Cyprus Parliament asked the Central Bank of Cyprus (CBC) to investigate the cost to local banks to convert mortgages in CHF to euro at their original exchange rates. The CBC has just two weeks to commune with the banks and provide its opinion. The parliament warned that legislation regarding the case would follow even without an answer from the CBC.

The significant volume of CHF denominated loans in the Cyprus is suggestive of the banks’ foreign currency loan selling practices in previous years.

Swiss Franc Total Loans

Millions €


















It’s not too difficult to estimate the full extent of the damage. The billion euro question concerns the legality of these loans, particularly whether Cypriot banks were transparent in communicating risks involved. There is already a precedent set for CHF loans in Croatia, Greece and Hungary, where the banks bear the FX hit. This is not the only cases where a European court has ruled in favor of the consumer when it comes to foreign denominated loans. A recent court decision in Athens called for the banks to pay for the full extent of the foreign currency hit. The court cases stress that European consumers are protected against dubious selling practices that banks evidently engaged in.

From our perspective, some banks have handled the CHF issue more responsibly than others, however. Most banks are willing to share at least some of the burden of foreign currency loans and our restructuring practice has forced banks to negotiate up to 100% of the foreign exchange loss, especially in the case of mortgages or personal loans. Whereas some banks deal with each case individually, others employ universal policies of 5-12% write-offs. The Greek subsidiaries appear to be more advanced at dealing with these types of cases, settling at much higher write-offs.

In most cases, however, this will require significant negotiating and even the threat of legal action. Most consumers will be unable to resist the banks negotiating tactics. Moreover, as a general rule banks are willing to write-off just 5-12% of the hit, arguing that the borrowers were well aware and informed of the risks. Additionally, the borrowers are required to sign off their rights to any further claims. It should be clear that consumers are protected against mountains of non-transparent lending.

There is no arguing that banking practices regarding foreign currency loans have been dubious in the past. Although an authoritative decision on foreign currency loans should force the banks to accept responsibility it will take a significant toll on an already fragile financial sector.

(*) George Mountis is managing partner and Costas Zeniou is senior analyst at Delphi Partners


About Author

Stelios Orphanides is a journalist at To contact Stelios Orphanides: [email protected]

  • Dino Savvides

    Thank you George for highlighting the problems faced by thousands of borrowers who were induced in taking out a loan in CHF. They were warned by the CBC as far back as 2006 not to make any loans in CHF but ignored this because of the high commissions paid to the banks for every CHF loan they arranged. I am pleased that the current government is putting pressure on the banks to compensate customers who took out such loans.

    • GSP

      as long as it is those who benefited from the commissions that take the hit.
      I don’t see why I as a bank customer should subsidise what was in effect a gamble by some people to get a cheap mortgage.

  • человек

    I wonder if they would be complaining about “how badly they had been advised” if the swiss franc had lost its value instead of becoming stronger….pathetic…