New Law on Conversion of Housing Loans indexed in Swiss francs – CHF

by ZS Law

On April 25, 2019, the National Assembly of the Republic of Serbia adopted a new Law on Conversion of Housing Loans indexed in Swiss francs- CHF (“Official Gazette of RS” No. 31/2019 hereinafter referred to as: “the Law”) which regulates mutual rights and obligation between banks and clients – a natural person that concluded a contract with the bank regarding a housing loan indexed in CHF to be converted into a loan indexed in EUR.

The Law became effective on May 7th 2019 and regulates the following issues in detail:

  • Scope of application – type of loan to be converted
  • Conversion procedure and debt reduction
  • Effects of coming into force on court and other legal proceedings
  • Obligations of clients if they accept or refuse to accept conversion
  • Conversion costs covered by  the bank and reimbursement of costs

With regard to types of loan, the Law applies to: (1) loans for purchasing residential property , (2) loans for renovation or reconstruction of residential property (3) refinancing housing loans approved by other bank. Vacation homes are not included in the scope of application.

In addition to defining the applicable loan debtor (natural persons) and types of loan (purchase,  adaptation or reconstruction of residential property, or refinancing such loans), the Law defines two categories of loan agreements it applies to. Article 3 of the Law prescribes that the Law applies on (1) loans with ongoing payments on the date the Law became effective (May 7th,  2019)  that didn’t convert to loans indexed in EUR (2)  loans fully matured on the date the Law became effective (May 7th,  2019), where enforcement proceedings or out of court settlement has not been initiated, or where such proceedings were initiated or are ongoing, including housing loans where the property used as collateral has been sold and the debt has not been fully settled.

The following provisions regulate how to implement conversion and reduce debt. In this manner, Art. 4 prescribes rules by which banks are obliged to offer conversion of the remaining debt under that loan into debt indexed in EUR at the conversion rate, whereas the remaining debt consists of the principal amount of debt on the conversion date increased by the amount of due but unpaid regular interest on the conversion date. The same article prescribes different rates that would apply in relation to the categories of banks according to the offer of these banks that were valid on March 31st2019. In accordance with this article, the bank is obliged to create a new loan repayment plan.

The conversion rate is defined by the Law as the middle exchange rate of Swiss franc (CHF) to EUR calculated on the basis of the official middle exchange rates of the National Bank of Serbia dinar to EUR and dinar to CHF valid on the conversion date (the date of conclusion of the conversion agreement in accordance with this Law).

The law establishes a reduction rate of 38% in relation to the amount obtained by the conversion.

Regarding the proceedings ongoing on the day the Law enters into force (May 7th 2019), the Law prescribes that the civil proceedings are interrupted, and that the procedures of enforced execution, or the procedure of out-of-court settlement in connection with collection of receivables are postponed  and that they can only be continued in accordance with the Law.

The legislator gives banks a 30-day deadline to submit their proposal to their debtors to convert their loans from CHF to EUR, with a capital write-down of 38% and a new interest rate, which was in force on March 31st this year. The moment clients receive the recommended letter from the bank, the 30-day period starts to run for the debtor to respond whether he agrees to a conversion or not. The bank submits to the client a signed contract that executes a loan conversion and a repayment plan at the conversion rate, whereby this contract is not considered a contract of renewal (novation) within the meaning of the law governing contracts and torts. By concluding the agreement, the enforcement procedure is terminated, and the bank has no right to reimbursement of the costs of that procedure from the debtor.

 In the event that the debtor does not inform the bank that he accepts the conversion of the loan, or does not conclude an agreement with the bank, repayment of the loan continues in accordance with the loan agreement, and the procedures that are suspended or postponed continue the next day after the expiration of the deadline for response.

Regarding the cost of conversion, the Law provided that banks bear the costs of conversion and debt reduction, as well as the possibility of reimbursement of expenses from the Republic of Serbia, in the amount of 15% of the amount received by the conversion.

This law stipulates that the debtors of the bank do not pay the costs of the notaries, the land registry (holders of public authorizations are obliged to provide those services without compensation), and in addition, any write-off of a part of the debt is considered as realized income of the citizens, in accordance with the tax regulations. Also, it is explicitly stipulated that the user can not bear any additional costs due to the application of the conversion of the loan. If you have any questions or need further information regarding the Law on Conversion of Housing Loans indexed in Swiss francs, be free to contact the partner Miloš Milošević, senior associate Ivan Ljubisavljević  and attorney  of law Milica Cicmil.

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