Poland to force banks to share Swiss franc borrowers' pain

By bne IntelliNews July 8, 2015

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The Polish government outlined proposals on July 8 that would force banks to share in borrowers' losses on Swiss franc mortgages. The programme, which will spread conversion of the loans over three to five years, is expected to cost lenders up to PLN9bn, compared to PLN30bn for the opposition Law and Justice (PiS) party's rival proposal.

Poland's banking sector has been under pressure since the Swiss franc's surge in early 2015 raised installments dramatically for the country's 550,000 or so forex borrowers. 

The ruling Civic Platform (PO), which has been on the back foot against the populist PiS over the issue, unveiled the details of its "solution" to the troubles of Swiss-franc mortgage holders just a day after Prime Minister Ewa Kopacz made a surprise announcement that the government would introduce a draft bill to legislate on the issue. 

Under the proposals, borrowers will be able to convert Swiss franc mortgages into zloty at market rates. The resulting PLN debt will be compared with the burden on the borrower had the original loan been made in Polish currency. Banks and borrowers will then share in the losses, with lenders to write off their half. Borrowers will be allowed to apply for conversion until 2020. PO MP Krystyna Skowronska said the scheme will likely cost the banking sector PLN 9bn-9.5bn. The ruling party hopes the bill will be passed by the parliament in the current term of office.

The move is a clear bid by PO to compete with the PiS, which has promised to implement "Hungarian style" taxes and other measures on the banks, supermarkets and large foreign investors. PiS has said it would force banks to take on full losses via conversion of loans at historic rates - a move the Polish Banks Association says would cost the sector PLN30bn.

PO is wary of creating the kind of instability that plagues the Hungarian banking sector. It had clearly hoped to avoid forcing a regulatory solution to the CHF-loans issue at all, but its recent collapse in support has made it scramble to answer PiS policies. 

PO lawmakers were keen to point out that the draft proposals would not affect banking stability. The government has been careful to stagger the programme to avoid a sudden hit on the sector. It will be initially restricted to bank clients with a loan-to-value of over 120%, with the LtV limit stepping down gradually to 80% over the next four years. Other restrictions will apply according to the size of a borrowers' assets and the mortgaged property.

"We estimate that around 60,000 people will be able to take advantage," MP Jacek Brzezinka said. "Extending the possibility of applying for the restructuring in time will allow the banking system to absorb the costs. The sector will be safe and there should not be any turbulence in the banking system."

Financial markets regulator KNF, which has previously called for forced conversion of forex loans, agreed. "Half of the currency risk costs would be covered by banks, but they would be spread in years, so would not threaten the stability of the financial system," it said in a statement.

Alongside PiS pledges to introduce a sector tax on assets, Kopacz's comments on July 7 had pushed banks to heavy losses on the Warsaw bourse. The details of the CHF loans plan led share prices to sag close to two-year lows, as some investors had bet that lenders would be allowed to design their own solutions to help borrowers.

However, some clearly saw the fall as a buying opportunity on the grounds that PO's solution is less drastic than many might have thought. Prices regained some of their losses in afternoon trading, with the WIG Banki index finishing July 8 down just 0.84%, after falling close to 6% since the start of the month.

However, there will remain plenty of risk hanging over the sector in the run up to the October election. Should PiS win office, the banks will more than likely be hit much harder.

On top of that, some also suggest PO may have left it too late, having been putting off regulatory action since the start of the year. "I wonder if we can assume that it is a final solution," Kamil Stolarski at Banco Espírito Santo de Investimento told PAP news agency. He notes that lawmakers would have to move very quickly to push the bill through all the hoops to get it to President Bronislaw Komorowski for signing before he leaves office on August 5. PiS' president-elect Andrzej Duda has already said he favours a far tougher scheme for lenders.

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