The Polish Banking Assocation (ZPB) issued proposals on resolving the issues surrounding Swiss franc mortgages on March 11. The suggestions look highly ambitious; an apparent shot in what has become a highly public negotiation.

The banks made the proposals as teh government mulls how to help Poland’s 600,000 mortgage borrowers holding CHF loans. Since the Swiss central bank dropped its cap on the currency in January, Poish borrowers have seen their monthly payments soar by around 20%.

The association floated solutions based on two pillars. The creation of a mortgage restructuring fund (FWRKH) to support borrowers facing difficulties in loan repayment due
to unforeseen circumstances and a sector stabilization fund
(SFS), to support borrowers who decide to convert CHF loans into zloty.

However, it pushed for the state to share the limited pain it hopes to secure for lenders. FWRKH, it suggests, should be financed not only by the banks (50%), but also by the state. SFS would be financed by banks (33%), the bank guarantee fund (33%) and the National Bank of Poland, it added. SFS would offer borrowers with earnings below the average the possibility to convert loans at CHF rate 5-20% below the current market rate.

The ZPB's proposals at this stage are seen as indicative, and will no doubt now go through various levels of public and behind the scenes negotiation. With tighter banking margins -after interest rates were cut recently to record lows - and threats of legal action against lenders overshadowing the sector, the stakes are high.

Furthermore, with elections scheduled for October expected to be close run, politicians of all stripes are keen to be seen to be helping a swathe of beleagured - and mainly middle class - voters. That has seen a series of proposals and counter-proposals issued via the media, as players on all sides attempt to sway the debate.

The banks' proposals are mostly seen as a response to financial regular KNF’s recent idea of converting Swiss franc loans into zlotys at historic rates. The government has all but ruled such a move out as it fears it could destabilise the banking sector. However, while a decision over a solution is in the offing, there is huge uncertainty over the country's lenders.

Yet, Polish Finance Minister Mateusz Szczurek responded to the ZBP proposals by warding off hopes of a quick announcement. "It is too early to declare support for [the ZBP's] or any other proposal," he said, according to Reuters.

Analysts at Erste note that the ZBP proposal that the government help underwrite the risks stands little chance of flying. "The banks reverting to any public means to take part in the clients’ losses is unlikely to win the approval of the regulator," they write. "The element of low income is justified, in our view, as the program would only ‘bail out’ those people who really have the problem of meeting the obligations."