Belka calls for Polish banks to solve Swiss loan problems by themselves

By bne IntelliNews March 23, 2015

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The head of the National Bank of Poland warned on March 23 that regulators will keep a watchful eye on how banks handle the issue of Swiss franc mortgages, apparently confirming speculation that Warsaw does not plan to impose a solution. 

Poland’s central bank will ask financial regulator KNF to tighten mortgage lending rules if the country's banks do not do more to help Swiss franc mortgage borrowers, Governor Marek Belka cautioned in an article published by Gazeta Wyborcza on March 23. The central banker suggests lenders need to come up with a wider solution on their own, which does not rely on any public money.

Some 500,000 Poles were hit by the appreciation of the Swiss currency against the zloty after the Swiss National Bank (SNB) removed the franc's cap to the euro in January. The lenders have since offered some help, but, according to Belka, the situation calls for a systemic response. 

"What the banks can offer today would be a provisional help. In the longer term, banks have to find a way for a general solution of the foreign currency loans," Belka writes. “Bank owners who approved their strategies and profited from foreign currency mortgages cannot wash their hands of it now."

The stern words of the central bank chief come as speculation rises that the government will not impose any solution. With elections due in the autumn, Warsaw has been mulling its response. While the ruling Civic Platform's core support is amongst the middle class Poles that make up the bulk of Swiss franc borrowers, the government has all but dismissed strongarm action.

Finanical regulator KNF has, for instance, called for the banks to be forced to convert Swiss franc mortgages to zloty at historical rates. Warsaw has warned that would undermine the stability of the banking sector. Sources on March 20 claimed the government has decided to take no action for now. Belka's words appear to confirm that, but add a warning to lenders not to rock the boat.

"Although today the central bank is not a banking supervisor, then if banks do nothing, out of concern for the financial system stability I will ask KNF to increase the requirements concerning mortgages," the NBP head writes.

In his article, Belka also stressed that Polish banks should not expect that public funds will be used to help Polish households struggling to pay Swiss franc mortgages. The Polish Banking Assocation (ZPB) surprised on March 11 when it suggested the state share the costs and risks connected to two proposed funds to be established to contain the problems.  

"In their proposals, the banks cannot assume using public funds, as this would essentially see the banks undergoing a transformation into the state budget, which gathers taxes from some citizens in order to pass them on to others," Belka wrote. "I think that the more than PLN16bn (€3.9bn) of last year's profits in the banking sector should be enough to find a sensible solution."

The very public negotiation over Warsaw's response to the crisis has had the markets on tenterhooks. However, no measures will be proposed “unless the franc rises further significantly", a source close to the government reportedly told Reuters on March 20.

Lenders have already agreed a so-called “six-pack” of measures designed to help borrowers. The measures include factoring the SNB’s negative LIBOR rate into interest rates charged by Polish banks, a six-month cut in currency trading spreads, a temporary suspension of repayments, and an option to convert loans to the Polish currency at market rates.

However, the potentially tight election race has put the government under pressure to do more. Commerzbank noted on March 23 that the latest poll puts the main opposition PiS just ahead of Civic Platform. That, they suggest, will only increase pressure for populist policies. With the government having already capitulated to the miners this year, that leaves the CHF loans the top topic. 

Despite the indications that the government hopes to leave the banks to sort out the CHF problem, the pall cast over the banking sector since January looks set to persist. The shares of banks with large Swiss franc portfolios – such as Getin Noble Bank, PKO BP, BPH, BZ WBK, mBank, Millennium and Raiffeisen's Polish unit - have been under pressure, and potential M&A and capital market moves have been delayed.

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