Polish banking watchdog wary of planned CHF loan conversion bill

By bne IntelliNews November 3, 2015

Polish financial regulator KNF warned on November 3 that a solution to the forex loans issue being worked out by the incoming government could destabilise the country's banks.

Referring to a reports of a draft bill on converting Swiss franc mortgages to zloty at historic rates, which is reportedly being prepared by President Andrzej Duda, KNF head Andrzej Jakubiak told local media it could cost lenders PLN60bn (€14.1bn). That would be impossible for the banks to shoulder, he claimed.

The regulator's comments came the same day that Gazeta Wyborcza leaked what it claimed were details from the draft legislation being drawn up by the president's office. Duda - formerly a member of Law & Justice (PiS) put the issue front and centre of his campaign for the presidential election in May. His proposal is likely to find favour amongst the government once PiS takes power, the party having won a majority in the October 25 vote.

The bill reportedly assumes there was actually no Swiss currency involved in CHF-denominated loans; banks simply transferred clients' money in PLN. Each foreign currency borrower would be able to apply for loan conversion by 2018, with the value equal to the amount clients received in zloty.

Duda's office has suggested the cost of the scheme is estimated at a mere PLN1.2bn annually. Analysts at Erste welcomed the hint that the impact would be spread out somewhat, but warned that the "total FX loss tied to CHF mortgage portfolios [would stand] at around PLN58bn".

Jakubiak's estimates are largely in line. He told biznes.interia.pl: “The cost of such a solution for the banking sector would amount to over PLN60bn vis-a-vis [the sector’s] annual profits at PLN16bn ... The sector would not be able to shoulder it." KNF has previously been one of the harshest critics of the banks' slow response to the crisis that hit borrowers in January when the Swiss franc spiked in value against the zloty.

At the same time, it is noted that the draft is not yet complete. The presidential office is expected to be submit the proposed legislation to parliament this month. PiS is expected to form a cabinet by the middle of November. It also plans a new tax on banks.

The banks most at risk from the bill include mBank, Getin Noble, PKO BP, BZWBK, Millennium, BPH, and Raiffeisen Polbank. Already hit hard in recent months over the likelihood of a painful solution to the forex loans issue, the share prices of most had declined significantly by the end of the day’s trading on the Warsaw Stock Exchange. Getin Noble, the most vulnerable of all, saw its stock lose nearly 5%.

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