Poland bids to avert mortgage crunch with Swiss currency swap agreement

By bne IntelliNews June 26, 2012

Tim Gosling in Prague -

The National Bank of Poland and the Swiss National Bank (SNB) concluded a Swiss franc/zloty swap agreement on June 25. The deal comes as the effects of the Eurozone crisis threaten to depress the zloty, which would in turn put stress upon the many Polish householders with a Swiss franc mortgage, and also aims to protect Polish banks against a liquidity squeeze in Europe.

The facility allows the NBP to provide Swiss franc liquidity to banks in Poland, "in the event of tensions in the Swiss franc interbank market," a statement from the SNB released on June 25 reads. The term of the swaps is one week, whilst all swap transactions will require prior approval from the SNB.

Hoping to avoid a knock-on effect on the market, the pair insisted that they do not expect to need to utilise the facility. "The two central banks do not anticipate that this agreement, which has been concluded as a precautionary measure, will need to be called upon," the SNB said in a statement.

Around 50% of Polish household mortgages are denominated in Swiss francs, according to Reuters. Poland secured a similar agreement that ran from November 2008 to January 2010 at the height of the global economic crisis. At the time, Polish banks had complained they were short of francs, which they need to service the debt they use to fund mortgages. Analysts say that the new swap deal provides a good backstop against any freeze in liquidity caused by the resumed panic in the Eurozone.

The global credit boom made the Swiss franc attractive to borrowers in CEE countries, which saw their currencies making heady gains and suffered from high borrowing costs. However, seen as a haven, the Swiss currency has seen huge gains through the crisis, and since 2008 the zloty has lost 44% against it, and currently trades at around PLN3.56 per franc.

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