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Spain's controversial mortgage index deemed potentially abusive

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Spain's controversial mortgage index deemed potentially abusive

European Union Court of Justice Advocate General Maciej Szpunar ruled that Spain's Índice de Referencia de Préstamos Hipotecarios, or Mortgage Loan Reference Index, which was used during the country's property crisis, could be considered abusive, Reuters reported, citing a spokesman for the EU Court.

The conclusion, which is nonbinding, could have implications for Spanish lenders as they potentially face having to pay billions of euros in compensation to customers that were overcharged and sold mortgages linked to the controversial index. The ECJ is expected to reach a final decision on the matter in early 2020.

The IRPH, which was based on the average monthly rate for mortgages and published by the Spanish central bank, was scrapped by the government in 2013 due to a lack of transparency claims and multiple cases in local courts. In 2017, the Spanish Supreme Court ruled that the index was not abusive, but the decision was challenged by provincial courts and a case was taken to the ECJ.

Shares of CaixaBank and other Spanish banks, which still hold IRPH-derived mortgages valued at more than €16.5 billion, fell Sept. 10 after the advocate general's conclusions were published but rebounded later, Reuters noted. CaixaBank is the most exposed with roughly €6.5 billion in IRPH-linked contracts, followed by Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA with €4.3 billion and €3.1 billion in exposures, respectively, according to the report.

Bankia SA and Banco de Sabadell SA also have exposures of €1.6 billion and €830 million, respectively, the newswire wrote.

Meanwhile, local investment bank Alantra Partners S.A. said it does not expect immediate losses for banks in 2019 if the ECJ rules that the index was abusive, as the "litigation risk would play out over several years," Reuters reported.