Converting Franc Loans Will Cost Croatia, Bank Says

As Croatia's government wrestles with the crisis facing borrowers with increasingly expensive loans in Swiss francs, the governor of the Croatian national bank, HNB, Boris Vujcic, has warned against trying to convert the loans into loans in the national currency.

After the Swiss franc soared by 20 per cent in relation to Croatian kuna in less than a week, the government on Monday said it will "freeze" the exchange rate at the level it held before the sudden hike for a year.

By pegging the currencies at one franc to 6.39 kuna, the government aims to help thousands of borrowers with loans, mostly in housing, connected to the Swiss currency.

It has also advised the HNB to convert all loans in foreign currencies to loans in kuna in the meantime, following the "Hungarian model".

However, Vujcic on Wednesday warned that converting all these foreign currency loans to kuna would cost Croatia 7.8 billion euro, or 73 per cent of its foreign currency reserves, while converting Swiss franc loans alone would cause the loss of 3.2 billion euro or 30 per cent of the reserves.

         In Bosnia and Herzegovina, there are almost 10,000 loans taken out in Swiss francs - around 6,000 in the Federation entity and just under 4,000 in Republika Srpska.

The Association of Swiss franc borrowers, Svicarac, said that at the tiime the loans were taken out, they were worth 872 million KM, or around 450 million euro in total, while their total value had since jumped to around a billion euro.

So far there are no concrete moves to help Bosnian citizens who have taken out loans in francs, although the Association Svicarac has put out several demands.

It says citizens should be re-paying the loans to the amount that they were set at the...