Romania’s lawmakers could deliver a new blow to the development of the country’s covered bond market, according to Moody’s, having approved a bill to convert into lei Swiss franc mortgages taken out by Romanians up to 10 years ago before a substantial appreciation in the foreign currency.

On Tuesday, the lower house of the Romanian parliament unanimously voted in favour of a bill to convert Swiss franc-denominated retail mortgages into Romanian lei, using the exchange rate at the time of the loan’s origination. The law was proposed to help borrowers who took out the Swiss franc mortgage loans towards the middle of the last decade, before the currency substantially increased in value.

The bill, which was approved by the upper chamber of the parliament earlier this year, still requires the approval of Romanian president Klaus Iohannis to become law. A market participant told The Covered Bond Report that the bill may still be sent to the Romanian Constitutional Court for further discussions, noting that the government has expressed a negative opinion on the proposals.

In a comment published on Monday, before the lower house’s final vote on the bill, Moody’s said the conversions would be credit negative for Romanian banks. The rating agency estimates that the conversions would cost banks around RON2.6bn (Eu580m), equivalent to 54% of their 2015 net income or 8.2% of total capital as of December 2015.

Moody’s said the plan is also credit negative for the development of Romania’s covered bond market “because it increases uncertainty for investors that rely on the collateral value of mortgage pools”.

However, Moody’s said the conversion of the mortgages into Romania’s local currency will remove the credit risk of further Swiss franc appreciation and would lower the risk-weighting for these assets, reducing banks’ capital requirements. The Swiss franc has appreciated about 80% against the Romanian lei since most of the Swiss franc mortgages were originated in 2006-08, according to the rating agency. Moody’s estimated that as of December 2015, Romanian banks held RON5.6bn (Eu1.24bn) of Swiss franc mortgages, equivalent to 5.3% of total mortgage loans.

The approval of the new bill is the second move by Romanian legislators that has been deemed unhelpful to the country’s covered bond prospects. In April, president Iohannis signed into force a law allowing most Romanian borrowers to opt for a strategic default on their mortgages. Market participants said at the time that the move would delay Romanian covered bond issuance.