Polish watchdog warns banks with CHF mortgages against paying dividends

By bne IntelliNews March 25, 2015

bne IntelliNews -

 

Polish financial watchdog KNF said on March 24 that it would seek to block dividend payouts at banks with large portfolios of CHF-denominated mortgages.

"Those banks will in April 2015 receive individual recommendations on not paying dividends," KNF said in a statement. The banks with large portfolios of Swiss franc mortgages include Getin Noble Bank, PKO BP, BPH, BZWBK, mBank, Millennium and Raiffeisen Polbank. Their share prices dropped after the statement.

The Swiss central bank's removal of the cap on the franc in January has hit the 550,000 or so Poles with CHF loans. The government has recently suggested it won't force lenders to help out, but there is clear political pressure for them to lend a hand to help borrowers, while the government is also keen to see consumers continue to spend.

“[The KNF’s] stance is widely viewed as trying to push banks to reach a more comprehensive compromise with CHF borrowers on their own,” Commerzbank wrote in a note.

KNF has been the strongest proponent of a state-imposed solution to the struggles of FX mortgage holders to keep up with their raised repayments. It has called for banks to be forced to convert mortgages at historical exchange rates, although clients would have to pay some compensation. However, Warsaw has all but ruled out such plans, insisting it would destabilise the banking sector.

KNF argues that banks should refrain from dividends in order to build up their capital buffers. It said it would increase the risk weighting of CHF mortgages and issue individual requirements to banks for increased capital requirements until the end of 2015. KNF estimates that applying a higher 150% risk-weight to CHF mortgages (vs the current 100% weighting) would lower banks’ average capital adequacy from 14.6% to 14%.

"This is a way to secure with capital the additional risk which appeared in the sector and which originates from FX mortgages for households that are unhedged," a spokesman for KNF told Reuters.

In a note, Erste said the announcement was “bad news” for the banks, particularly for PKO, MBK (which already issued a dividend recommendation), BZW and Millennium.

Although it has no formal power to prevent payouts, KNF has strictly patrolled dividends at the country's banks through the crisis. Its tough stance helped stem outflows of capital from banks to Eurozone parents, one of the biggest contagion risks for CEE over the past few years.

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