Bank shares spike as Poland pledges no forced conversion of CHF loans

By bne IntelliNews January 29, 2015

Poland will not force banks to convert Swiss franc loans below market rates, deputy Prime Minister and Economy Minister Janusz Piechocinski pledged on January 28. The announcement saw the battered share prices of Polish banks spike with relief.

Noting that any forced conversion would be bad for both banks and borrowers, the official said the government is working on a package of proposals to help the 500,000 or so Polish households holding CHF mortgages. The proposals mostly resemble those already proffered by the banks, as they sought to ward off tougher action from Warsaw. 

The issue is a political hot potato ahead of elections in the autumn. That had led many to expect the government would hit the banks hard with a populist policy. Polish officials have been in touch with Hungary, which escaped the Swiss franc meltdown having pushed through a conversion scheme in November.

On January 26, Prime Minister Ewa Kopacz said that a forced conversion would likely be among the list of proposals to be presented to the government a on January 28. That had only increased the losses for bank stocks. In reply to Piechocinski's announcement, bank shares rose sharply on the Warsaw Stock Exchange.

PKO, the country's biggest lender, climbed 5.15% to PLN34.11 following the sharp falls it has seen from the PLN36.90 it closed at on January 14. Getin Bank - one of the most exposed to CHF loans - gained 6.59% after losing close to 15% in the preceding days.

The Swiss National Bank (SNB) shocked global markets on January 15 when it removed the cap on the Swiss franc to the euro. The central bank also slashed rates to -0.75% as it bid to outrun an expected inflow of speculative capital on the back of the launch of the European Central Bank's quantitative easing programme, which was announced on January 22.

That sent the currencies of several CEE states into a tailspin. Like those in Hungary and Croatia, Polish households were sold CHF mortgages in the boom years before 2008, tempted by lower rates and a strong zloty. The crisis has seen monthly installments rise as the CHF pushes higher thanks to its status as a haven currency.

The government package consists of four proposals. Banks should pass on the negative Libor rate to borrowers and allow customers to convert their mortgage loans from CHF to PLN without any additional fees, but at market rates.

Banks should also hold off on demanding additional collateral from borrowers. Meanwhile, three-year payment vacations should be introduced for both CHF and PLN mortgage loans.

Save for the last, the proposals have already been made by the Polish Banking Union. After meeting with Finance Minister Mateusz Szczurek, governor of the Polish central bank Marek Belka and the financial markets regulator KNF, the banks pledged their own measures on January 23 in a bid to stem tougher action by the government. The authorities have meanwhile ordered a probe into the behaviour of the banks.

All major banks with Swiss franc mortgages in their portfolio have reportedly agreed to pass on the negative CHF/Libor rate. A number has so far pledged to lower spreads. PKO BP, the country's biggest, will slash the spread it uses to 1%.

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