The heads of four international banking groups warned in a leaked letter to  Romanian president Klaus Iohannis they are considering legal action over draft legislation introducing limited liability for mortgage holders.

Under the bill, if mortgage borrowers are unable to make repayments, they can give their collateralised properties to banks and have their debt written off. The bankers say this could cost banks “billions of euros” and severely damage the mortgage market.

Many Romanians who purchased property during the 2006-2008 real estate boom are deep in negative equity, but borrowers of Swiss franc denominated mortgage loans are the most likely to take advantage of the new law.

Within Romania, the bill has already prompted heated debates, and critics say its implications have not yet been sufficiently investigated.

The controversial bill was endorsed by lawmakers and sent to Iohannis for promulgation on December 9, according to a parliament statement. Iohannis has to promulgate the bill within 20 days (i.e. by December 29) but has the power to also return it once to the parliament.

Top officials from Erste Bank, Societe Generale, Raiffeisen and UniCredit now say they are considering suing the state through the Romanian courts, foreign courts and European bodies.

The letter dated December 1, and published by hotnews.ro, is signed by Andreas Treichl, CEO of Erste Group which owns the largest local lender BCR, Carlo Vivaldi, head of Eastern and Central Europe at Unicredit Group – owner of Unicredit din Romania, Frederic Oudea, president of the European Federation of Banks and CEO of Societe Generale – owner of Romania’s second largest lender BRD, and de Karl Sevelda, CEO of Raiffeisen Bank International – which also operates a large bank in Romania.

The bankers appealed to Iohannis to reconsider the law, which they say violates Romania’s constitutional principles as well as European legislation.

“We would prefer to avoid being forced to take further steps to defend our investments in Romania,” the bankers say in the letter.

The “datio in” law - a term used by the bankers meaning discharging a debt by giving something instead of paying with money - violates property rights, principles of non-retroactivity of new legislation and the free movement of capital, they claim.

The bankers also say the law does not follow any social or economic principle and that it puts at risk not only mortgage lending but bank lending in general in the medium term.

The letter also points out that European Directive 2014/17/EU – referenced by Romanian lawmakers as the origin of the limited liability law - specifically says that new regulations should not be levied against contracts signed before March 21, 2016.

There is also opposition within Romania, where the central bank has recommended that Iohannis either return the bill to parliament or challenge it through the Constitutional Court, Mediafax reported on December 11.

The bank claims that if adopted, the bill will put an end to mortgage lending in Romania, push one bank into bankruptcy and create major problems for at least three others.