Polish bank stocks routed after EU’s top court adviser sides with customers on FX mortgages

Polish bank stocks routed after EU’s top court adviser sides with customers on FX mortgages
Consumers could pursue claims that go further than just returning the cash and default interest on it, argued the CJEU's adviser. / Laurent Verdier
By Wojciech Kosc in Warsaw February 16, 2023

Stocks of Polish banks fell on February 16 after an adviser to the Court of Justice of the European Union said in a non-binding opinion that banks can’t claim payments beyond reimbursement of the loan principal on controversial Swiss franc mortgage contracts.

Consumers, meanwhile, could pursue claims against banks that go “beyond reimbursement of monetary consideration” – meaning going further than just returning the cash and default interest on it – the CJEU’s Advocate General Michael Collins said in a statement.

That said, it will ultimately be up to the Polish courts to “determine, by reference to national law, whether consumers have the right to assert such claims and, if so, to rule on their merits”, Collins  said.

His opinion is derived from the EU’s directive on unfair terms in consumer contracts, which aims at providing consumers with a “high level of protection”.

“The contractual term held to be unfair does not produce binding effects on the consumer and, consequently, he or she ought to be restored to the factual and legal position he or she would have been in had that term not been included in the contract in the first place,” Collins said in the opinion.

Banks, on the other hand, “ought not to derive any economic advantage from a situation [they have] created by [their] own unlawful conduct”, the advocate general added. 

The Association of Polish Banks (ZBP), a banking lobby, said in reaction that the CJEU does not have to follow the opinion of the advocate general.

The ZBP also said that other CJEU’s verdicts contravene the advocate general’s opinion that banks cannot seek claims against customers.

Bank shares on the Warsaw Stock Exchange fell in reaction to the opinion, which is not binding to the CJEU but tends to indicate fairly accurately the court’s final decision, which is expected later this year.

The WSE’s blue-chip index – WIG20 – fell 0.82% in  afternoon trading, the fall led by the stocks of major lenders PKO BP falling 3% and mBank falling 2.68%.

The bourse’s banking stocks index, WIGBanki, was trailing 1.5%, with Bank Millennium’s share price falling 6.32% and BNP Paribas Polska falling 1.63%. 

The issue taken up by the CJEU goes to the very heart of the long-festering problem that the Polish banks have with hundreds of thousands of mortgages denominated in foreign currencies, chiefly the Swiss franc.

Polish lenders face a barrage of lawsuits over the CHF-denominated mortgages, which they granted liberally in the mid-00s when the franc was at an all-time low against the Polish zloty. 

Banks and financial intermediaries highlighted the attractiveness of the loans’ lower repayments to customers who could not afford them in zlotys at a time of a massive property boom in Poland.

But when the Swiss central bank unpegged the franc from the euro, the zloty weakened considerably nearly overnight, causing the repayments to skyrocket. The franc today is still worth over twice as much in zloty terms than it was during the heyday of the CHF-denominated mortgage market.

Not only did borrowers have to pay much bigger repayments, but the loan-to-value of their properties worsened considerably, making it difficult for them to move property.

The Swiss National Bank’s raising of its policy rate to from 0.25% to 1% in recent months only gave the borrowers more problems. 

The borrowers have long said now that the banks lured them into the mortgages by not highlighting the currency risk enough and using a number of so-called abusive clauses, for example in calculating their CHF-PLN spread.

Thousands of Poles have taken their banks to court, looking to annul the loans or clear the loan contracts of abusive clauses – with courts tending to side with the claimants.

The banks responded with counter-claims, which Collins’ opinion has just made more difficult to pursue. They appear likely to be all but impossible, should the CJEU’s ruling be in line with the opinion.

However, some observers said that since the matter is ultimately up to the courts, it may be years before there is an established line of legal practice with regard to FX loans.