Poland’s financial watchdog KNF ordered five banks to increase their capital buffers to cover the risk of their exposure to CHF-denominated mortgages, the banks announced on October 23.
Several Polish banks have large portfolios of mortgages denominated in the Swiss franc, granted during the residential market boom that largely coincided with the Swiss currency’s weakness against the zloty. However, when the Swiss National Bank freed the franc from the cap against the euro in January, it caused CHF to strengthen against the zloty, increasing mortgage repayments for more than 500,000 Poles and creating concerns about the stability of banks holding those loans.
KNF told Poland’s largest bank, state-controlled PKO BP, as well as BZ WBK, mBank , BGZ BNP Paribas and Getin Noble Bank to set aside a percentage of their capital, with the actual figures different for each bank.
PKO BP needs to set aside 12.76% of its total capital, an increase of 0.76pp on the capital buffer now, the bank said in a statement. Other banks followed suit. BZ WBK, a unit of Spain's Santander, was asked to increase its capital buffer by 0.72pp to 12.72% of total capital. The figure for mBank, which is owned by Germany's Commerzbank, is 16.39% of total capital, an increase of 4.39 pp.
For BGZ BNP Paribas, the local unit of the French lender, the KNF recommended to increase its capital cushion to 12.71%, equal to adding 0.71pp. Finally, Getin Noble Bank was told to set aside 14.03% of its total capital, which is up 2.03pp.
The KNF’s recommendations were long expected. Although noting that they operate in a favourable macroeconomic environment, the KNF has persistently called for banks exposed to forex loans to shore up their capital. In a report published in early October, the regulator reiterated its concerns.
Meanwhile, the election in Poland, being held on October 25, is very likely to bring about a change of the government to one led by populist PiS, which has proposed during the campaign that CHF borrowers should be able to convert their loans to the Polish zloty at historical rates. This is believed to set the lenders back to the tune of PLN30bn (€7bn), adding to the sector's worries of a difficult time ahead.