Polish banks table new mortgage relief proposals as pressure rises

By bne IntelliNews May 28, 2015

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The Association of Polish Banks (ZBP) tabled the industry's own new proposals on May 27 designed to help struggling holders of foreign currency mortgages. However, the measures put on the table look unlikely to fly in Poland's increasingly populist political climate.

The proposals aim first of all at helping holders of Swiss franc-denominated mortgages, with the banks under huge pressure from politicians and regulators to take on some of the costs after the Swiss franc's steep appreciation against the zloty earlier this year. The risk that lenders could be forced to take a big hit on their Swiss franc-mortgage portfolios has spiked in recent weeks as the populist opposition Law and Justic (PiS) party has pushed its way to the top of political polls less than six months before parliamentary elections by winning the presidential election on May 24.

The banks proposed a number of measures that they suggest will cost the sector up to PLN700mn-800mn (€193mn) this year. The country's lenders posted a combined net profit of PLN16.2bn in 2014.

The most expensive measure, which the banks estimate will cost PLN300mn-600mn, is to create internal stabilisation funds that will help Swiss franc borrowers service their repayments should the zloty drop against the franc beyond a “determined border level,” the ZBP wrote in a statement. 

Yet the measure looks very limited. The “determined border level” of the franc’s appreciation to the zloty was proposed at PLN5, roughly 25% above the current rate. The measure is also limited to borrowers whose income is below the national average when they apply for help. Another limitation is the size of apartment or house on which the mortgage is held.

The banks also propose putting PLN125mn into a government fund to help mortgage borrowers, regardless of the currency of their loan. The fund will help borrowers in individual difficult situations such as losing a job or falling ill.

The bank lobbyist also said that it will prolong the existence of the so-called “six-pack” of measures, announced earlier this year. That package includes factoring the Swiss National Bank's negative Libor rate into interest rates, a six-month cut in currency trading spreads, a possible temporary suspension of repayments, and an option to convert loans to the Polish currency at market rates.

ZBP said ten banks have joined the effort: mBank, PKO BP, BGZ, Millennium, BZ WBK, Raiffeisen, Getin Noble Bank, Santander, Deutsche Bank, and Bank BPH.
However, the measures are unlikely to impress. While the government strongly suggested early this year that it does not favour a solution that would put the stability of the banking system at risk - a reposte to market watchdog KNF's suggestion that lenders be forced to convert these loans at historical forex rates - that pledge came before the recent rise in political pressure.

The financial regulator said that in assessing ZBP's proposals it would look primarily at whether they address mortgages with loan/value exceeding 100% "in a durable way". The ZBP's proposal did not address the issue directly.

With over 500,000 people with Swiss franc mortgages, the government and the National Bank of Poland have called on banks to institute their own measures to help out. NBP Governor Marek Belka said on May 26 that lenders should prepare themselves for the costs of conversion, although he insisted pushing it through at historical rates would be "immensely costly" for the taxpayer.

"Banks need to know that the pressure for conversion will be there all the time and will increase, so they should prepare themselves capital-wise, not pay out dividends and cover the costs," Belka told broadcaster TVN24, according to Reuters.

The ruling Civic Platform's political struggles are clearly an additional risk factor for the banks, coming as they do just ahead of the general election in October. President-elect Andrzej Duda of PiS has backed up campaign calls to apply the KNF's suggested conversion of Swiss frac mortgages. The banks reiterated on May 27 their argument that such a move would cost them PLN30bn and put the sector at risk.

Duda has also suggested a new tax on the banking sector. A new banking tax "would be very costly for the economy: it would certainly slow down the pace of growth and limit the possibility of financing the developing economy by the banking sector," ZBP chief Krzysztof Pietraszkiewicz said during a press conference, according to PAP news agency.

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