Polish bank stocks clattered as Warsaw moves goal posts on forex loan conversion

By bne IntelliNews August 6, 2015

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Polish banking stocks tumbled on August 6 following approval by parliament late the previous day of a last minute amendement to legislation on forex mortgage loan conversion that will pile most of the pain onto lenders.

Under the legislation, borrowers will be able to convert Swiss franc mortgages into zloty at market rates. The resulting PLN debt will be compared with the burden on the borrower had the original loan been made in Polish currency. 

However, in a crucial late change to the original proposal - which was put forward just last month - lenders will now be forced to take on as much as 90% of the resulting losses, rather than the previously suggested 50%. That change will increase the cost of conversion for the banks from around PLN9.5bn to PLN19bn, estimate analysts at Trigon. The Association of Polish Banks (ZPB) assessed the likely cost to be "in the teens [of billions]," according to PAP

Unsurprisingly, the shares of those banks with the largest exposure to Swiss franc mortgages led the falls on the Warsaw Stock Exchange. The new scheme would drive Getin Noble to losses in both 2016 and 2017, according to Trigon; the mid-sized lender plummeted over 25% in early trading. 

Bank Millennium is also likely to be forced into a loss next year, driving its stock 15% lower. The rest of the sector also sank heavily, with the country's biggest lender, PKO BP, close to losses of 10%.

Poland's financial regulator KNF had little sympathy, however, blaming the banks' foot dragging in addressing the issue themselves. The ruling Civic Platform (PO) held off on the issue for months following the surge in the value of the Swiss franc in January. However, lagging the populist PiS in polls ahead of October elections, it has been forced to act.

"One needs to remember that the works on the bill were undertaken because of the lack of an adequate reaction from banks to the new situation," KNF said in a statement, according toPAP. "A voluntary systemic solution for the problem of Swiss franc loans was missing."

Earlier this week, the legislation was also changed to include more borrowers than originally envisaged in the early days of the scheme. That move saw PO officials suggesting the costs for the banks could rise to PLN12-15bn.

However, even the new PLN19bn draft may not prove the bitterest pill for lenders. To become law, it would have to be signed by President Andrzej Duda, who was inaugerated on August 6. His party PiS has said that should it take power after October, it wants to force forex loan conversion at historic rates. ZPB claims that would cost banks over PLN30bn.

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