Slovenia's Constitutional Court has invalidated a law that would have required banks to amend loan agreements previously denominated in Swiss francs.

According to calculations by the Slovenian Banking Association, this would have cost the affected banks up to EUR 300 million.

Parliament passed the law in February, but the constitutional court temporarily suspended it in March after complaints from nine banks.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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The regulation, which was passed a few weeks before the elections, obliged lenders to retrospectively introduce an exchange rate cap for all Swiss franc loans taken out in Slovenia from mid-2004 to the end of 2010, regardless of whether they had been converted into euros or had already been repaid .

Parliament had given the number of affected borrowers as 32,000.

There had been protests against the law by the EU, the European Central Bank and criticism from the Slovenian central bank and the institutions concerned.

Violation of the prohibition on retroactivity

The constitutional court in Laibach (Ljubljana) has now followed this in the judgment handed down last week.

The "systemic revision of loan agreements in Swiss francs that were agreed before the law came into force" violates the prohibition of retroactive effect of laws, ruled seven of the eight judges against the vote of the chairman Matej Accetto.

The regulation is also not in a special public interest.

Unicredit and Intesa were affected

Those most affected by the law were Unicredit and Intesa Sanpaolo from Italy, the Russian Sberbank, Slovenia's largest bank Nova Ljubljanska Banka and, via its local subsidiary, the Kärntner Sparkasse and Vienna's Addiko Bank, which is active in Slovenia and the Western Balkans.

The latter had estimated their damage at the worst up to 110 million euros.

She expressed her satisfaction with the Supreme Court's decision.

But since new legislative initiatives cannot be ruled out, the company will “continue to try actively to find a solution together with other banks and the Slovenian government in order to finally create legal certainty with a balanced approach.”

Popular franc loans

Until the middle of the last decade, franc loans were popular in many countries in Central and Eastern Europe.

With low interest rates and a calculable exchange rate of the franc to local currencies and the euro, they promised a cheap form of debt, which millions of home builders in particular took advantage of.

When the Swiss central bank unpegged the franc from the euro in 2015 and the Swiss currency quickly appreciated, borrowers suddenly had to spend a lot more money on interest and principal in local currency.

They accuse the banks of not having sufficiently informed them about the risks of foreign currency loans.

Governments intervened almost everywhere, mostly at the expense of the banks.

The problem has now been resolved in most countries, except in Poland, where the Supreme Court has repeatedly adjourned a landmark decision and courts are now dealing with thousands of lawsuits against banks.