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Banks agree to end action against Croatia in loan conversion dispute

ZAGREB, Feb 2 (Reuters) - Six banks have agreed not to take legal action against Croatia over its conversion of Swiss franc loans into euros in 2015 at the lenders’ expense, the finance minister said on Tuesday.

Many individuals and companies in Croatia and eastern Europe had taken out Swiss franc mortgages to benefit from low interest rates but were then caught out when the franc strengthened in 2015, leaving them with higher debts to pay.

Croatia’s then centre-left government forced banks to convert the loans to euros to protect borrowers. The banks carried the costs of about 1 billion euros ($1.2 billion), prompting them to either launch lawsuits or threaten action saying costs had not been fairly shared out.

Finance Minister Zdravko Maric said six banks, which sought redress in Croatian courts and at the International Centre for Settlement of Investment Disputes (ICSID) in Washington, had agreed to end their action or said they would not start any.

“By this we removed a threat of the potential financial obligation for the state coffers worth at least 2.5 billion kuna ($397 million),” Maric, a minister in a centre-right government that took office last year, told a news conference.

Maric said the banks which had agreed to drop their lawsuits at home and abroad were Zagrebacka Banka, owned by Italy’s UniCredit, Austrian banks Raiffeisenbank and Erste, and Hungary’s OTP.

In addition, he said two banks agreed not to start legal action, namely Privredna Banka Zagreb, owned by Italy’s Intesa Sanpaolo, and Russia’s Sberbank.

Maric said the deal would improve the business climate as banks had recognised his government’s effort to create a safer environment for international investors.

OTP bank said the deal would prevent further costs for both sides and Erste bank said the deal was a constructive solution. Other banks did not immediately issue statements on the matter.

($1 = 6.2995 kuna)

$1 = 0.8311 euros Reporting by Igor Ilic; Editing by Edmund Blair

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