Poland’s banking sector is stable and well-capitalised but faces a “high level of uncertainty” linked to the still unresolved legal risks concerning its foreign currency-denominated mortgage portfolio, the International Monetary Fund said in a report on March 24, recommending that the government take action to resolve the uncertainty.
Polish banks continue to look with unease at the festering problem with billions of zloty worth of mortgages denominated in foreign currencies, mainly the Swiss franc, which they granted liberally in the early 2000s.
A wave of lost court cases against the borrowers – arguing the mortgage contracts contained abusive clauses – has made the banks set aside billions in provisions for legal risk that the FX mortgages have become. Some banks have rolled out programmes of converting those mortgages into local currency.
Still, a looming verdict by the EU’s top court could soon deny the lender any option to charge borrowers for their loans beyond repaying the capital in case a court renders a mortgage invalid.
“Foreign exchange mortgage legal risks continue to cast a high level of uncertainty over the banking sector,” the IMF said.
“The authorities should explore policy options that help resolve this uncertainty,” the IMF also said.
There also are other legal and regulatory challenges that could “hamper the ability of banks to support the economy”, according to the IMF.
“Mortgage credit holidays made available to all borrowers – regardless of income or actual distress – have led to significant costs for banks and should not be extended,” the IMF said.
“Adverse market conditions have complicated the ability of some banks to issue instruments available for bail-in in the event of resolution, in line with MREL requirements,” the IMF also said.
Absent an improvement in market access, these banks may need to meet the requirement with their own funds in early 2024, the IMF warned.