Yesterday, the Slovenian Parliament passed the law on loans in Swiss francs that is putting an FX Cap on the exchange rate between Swiss francs and the Euro and is overruling all court rulings on this issue, even those where it is voted in favour of the banks. Banks will file an initiative with the Constitutional Court to initiate proceedings to assess the constitutionality of the law and a proposal to suspend enforcement. The application for suspension until the review of its constitutionality will be filed, but if it is not accepted it could potentially threat Slovenian banking sector. NLB has published the announcement on LJSE where it estimates potential negative pre-tax effect of EUR 70m-75m.
Yesterday, the Slovenian Parliament passed the “Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs” that is putting a cap on the exchange rate between Swiss francs and the Euro to be set at 10% volatility (the “FX Cap”) and shall be applied from the conclusion of any of the affected loan agreements. The Law affects all loan agreements denominated in Swiss francs (regardless of whether the agreements are still in force) concluded between banks operating in Slovenia as lenders and individuals as borrowers in the period from 28 June 2004 to 31 December 2010.
Banks will file an initiative with the Constitutional Court to initiate proceedings to assess the constitutionality of the law and a proposal to suspend enforcement. The application for suspension until the review of its constitutionality will be filed by banks collectively. But if it is not accepted by the Court, the banks my have to start booking reservations as early as in Q1 2022 result. So if Constitutional Court does not accept this bank’s initiative Slovenian banking sector could collectively take a hit of few hundred millions of Euro. Banks has started to make public their exposure to the Swiss francs loans in question and they have started to estimate their potential reservations for these costs.
NLB has published yesterday the announcement on Ljubljana Stock Exchange, where it estimates a negative pre-tax effect on the operations of NLB and NLB Group between EUR 70m-75m, subject to further detailed analysis. To put things into a perspective, this accounts for brodaly speaking a quarterly EBT of the Group. Impact on NLB and NLB Group is material but very manageable given the historically limited extent to which NLB engaged in Swiss francs lending. NLB is sufficiently well capitalized so it will not threaten its capital adequacy ratio falling below required level, nor will it threaten completely its dividend pay-out but it could potentially influence its 2022 net income. We note that as of 9M 2021, the Group reported a CAR of 17.2%, indicating excess capital of EUR 373.2m.
Addiko Bank, despite being a significantly smaller player in Slovenia, seems to be more exposed to CHF loans. To be specifc, the Group noted that they assessed a negative impact caused by the implementation of the new law in the range of approximately EUR 100 to 110m , based on its own interpretation and assuming a worst-case scenario. Such negative impact would result in a net loss for the financial year 2022. Consequently, no dividends are expected to be paid out for the financial years 2021 and 2022.