(Bloomberg) -- Slovenian lawmakers approved a law aimed at protecting Swiss-franc borrowers from currency risk, which triggered a firestorm from lenders arguing that it could saddle them with hundreds of millions of euros in losses.
Some 6,000 households still have franc-denominated loans of about 250 million euros ($278.5 million), according to central bank data. The proposal, brought forward by a group representing businesses and local representatives, is stirring debate ahead of elections in April.
The law was approved with a majority of 52 votes in the 90-seat legislature and will be signed into law by President Borut Pahor. It was criticized by the central bank, which oversees the euro-area nation's financial sector.
The bill is not in line with European legal standards and could “potentially have a negative impact on the stability of the Slovenian financial system or the most exposed banks,” the central bank said last week. The European Central Bank also criticized the draft, saying it would have “a negative impact on the profitability, capitalization and future lending capacity of the banking sector.”
The banking industry vowed to challenge the measure. The Bank Association of Slovenia will petition the Constitutional Court to review the law and temporarily halt it, it said in a statement following the vote in parliament.
Swiss Loan Fallout
While the popularity of Swiss-franc loans peaked in the former Yugoslav republic in 2008, previous attempts at resolving the issue have failed. Banks have slammed the new bill as unconstitutional and harmful for the nation's reputation.
Mortgages and consumer loans in the Swiss currency surged before the economic crisis erupted in 2008 because they offered lower interest rates. But subsequent appreciation in the Swiss franc made repayments -- carried out in local currency -- more expensive.
The draft states that banks failed to properly inform their clients between 2004 and 2010 of the potential currency risks. It seeks to force lenders to pay back the difference or face fines or even the revocation of banking licenses if borrowers aren't repaid within 60 days.
Slovenia, the first eastern European nation to adopt the euro, has been among the last to seek a systemic solution to franc borrowers' troubles. Hungary, Croatia, Romania and Montenegro helped such borrowers years ago.
Poland has failed to address the foreign-currency lending problems, and thousands of borrowers have taken banks to court.
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