Eight Banks in Romania Battle on the Swiss Franc Loan Front

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Loans in Swiss francs are an apparently cheap alternative for long-term funding, with banks charging an annual interest rate of around 4%, whilst annual euro interest rates rarely fall below 6%, reported zf.ro.

The nominal interests on loans in Swiss francs vary from 3.9% a year to 6% a year. In comparison, interest rates on euro loans start from 5.7% and can climb to 9% a year.

The interest rate difference is apparent in the value of the instalment, which enables the customers to receive higher value loans.

If the same sum is borrowed in both currencies, the total amount a client has to repay is considerably lower in Swiss francs than in euros.
Whereas a mortgage taken out in euros over a twenty-year period comes with an interest rate that ultimately equals the value of the initial loan, the amount in Swiss francs is lower.

For a 100,000-franc (around 60,600 euro) loan, the total amount repaid over a 20-year period ranges from 166,000 to a little more than 200,000 francs. In the case of a similar loan in euros, the customer would repay 115,000 to 135,000 euros for the borrowed sum of 60,600 euros.

At present, eight banks offer the option of loans in Swiss francs, after initially being introduced onto the market in 2005, by the Hungarians at OTP. The other banks offering loans in Swiss francs are Raiffeisen, Volksbank, Credit Europe Bank, Piraeus, Banca Romaneasca and Bancpost. Porsche Bank also offers loans in Swiss francs, but only specialises in auto funding.

Raiffeisen is currently charging the lowest interest rate for loans in Swiss francs, 3.9%, which remains fixed in the first year. Volksbank charges an annual interest rate of 4.25%, in addition to a risk commission of 0.16% - 0.25%, which is payable every month depending on the customer's profile.

Banca Romaneasca charges 5.5% a year, the same as OTP. Piraeus Bank and Bancpost offer the highest annual interest rates on loans in Swiss francs, of 6.2% and 6.5% respectively.

The niche of lending in Swiss francs became crowded last year when many players chose to take advantage of the benefits generated by displaying low interest rates. However, many other bankers felt this alternative entailed too great a risk.

Funding in Swiss francs comes with a greater risk because the RON/CHF exchange rate is calculated indirectly using the EUR/CHF rate and the EUR/RON rate.

In the first half of the year, the Swiss franc lost almost 10% against the RON, given that it lost ground against the euro and the RON/EUR rates on the market in Bucharest witnessed a significant decline. As a result those who took out loans in Swiss francs are now paying lower instalments in RON. However, if the trend reversed, their instalments would increase.

At present, the Swiss franc is at very low levels against the euro, with even the major players on the financial markets preferring to borrow in francs, thus taking advantage of low interest rates in order to direct capital towards future investments. However, the central bank of Switzerland has begun a cycle of raising interest rates.

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