Poland’s softened draft law on the conversion of forex loans offers at least short-term respite for the country’s banks, Fitch Ratings said in a note released on August 4.

Poland’s sovereign credit ratings have been on the mind of the market since Standard & Poor’s surprised with a downgrade in January, which was mostly driven by political developments. Moody’s and Fitch have both noted in recent months that the likelihood of a forex loans conversion scheme that would hit the banking sector hard is a major credit risk. The more lenient scheme put forward by the president on August 2 therefore clearly reduces the risk of another downgrade.

Previous versions of the legislation had suggested forcing the banks to convert forex loans at an estimated cost of up to PLN70bn (€16.3bn). The latest draft, which is due to have details filled in on August 10, suggests banks should develop voluntary efforts to help mortgage borrowers struggling due to the January 2015 spike in the value of the Swiss franc. For now, the authorities demand only that they refund ‘unfair’ spreads charged on the accounts – a move expected to cost lenders around PLN4bn at most.

“Our ratings of Polish banks have not factored in risks related to [foreign currency] mortgage restructuring, as we expected that the solution ultimately adopted would not result in significant one-off losses for lenders,” the Fitch analysts wrote in a statement. “The proposal announced this week appears to be broadly in line with those expectations and so will not result directly in any rating actions.”

The new proposal “avoids the legal complexities and significant costs of forced conversions, which could prompt further sovereign rating downgrades and deteriorating investor sentiment,” Danske Bank pointed out in its own note released the same day.