National Bank of Poland could provide Swiss francs for conversion of loans suggests presidential aide

By bne IntelliNews May 17, 2016

The National Bank of Poland (NBP) could be instrumental in carrying out the planned conversion of Swiss franc-denominated mortgages by providing lenders with currency to pay off their foreign liabilities, a presidential aide told local media on May 17.

The office of the President Andrzej Duda has been at work to draft a law allowing conversion of over 500,000 mortgages denominated in the Swiss franc. After a spike in the value of the CHF in early 2015 saw repayments spike, discussion over how to alleviate the costs for banks of converting the loans has been ongoing. The president's office suggests it will have the bill ready next month.

After the president had to back down on his earlier idea for the conversion, which the financial market regulator KNF assessed would cost around PLN70bn (€16bn), his office has been working at a less costly solution. The new idea may be for the NBP to provided Polish lenders with Swiss francs so they can pay back their CHF liabilities abroad, a presidential aide told Dziennik Gazeta Prawna.

“From the technical side, [to carry out conversion] banks will have to buy francs to pay them back to those who are financing them or to terminate transactions which are hedging the exchange rate. With an operation on such a scale this could have an impact on the FX market. So francs could be provided by the central bank," Marek Dietl told the newspaper.

He added, however, that it is only an idea at the moment; it will take until June for the president’s office to table a new proposal.

“If the NBP were to acquire CHF in an amount sufficient for the conversion, even if the conversion did not happen, it would have a strengthening effect on the PLN. These comments mean that the president’s team of experts is serious about resolving the problem, which means that the impact on banks could be negative,” Erste writes in reaction to the new proposal.

The conversion is one of the ideas that has been mentioned a number of times by rating agencies or the International Monetary Fund as a factor potentially damaging to Poland’s investment climate and economic growth.

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