Like other Central and Eastern European countries, thousands of Poles took out Swiss franc mortgages in the 2000s to take advantage of the low interest rates in Switzerland. In 2008, mortgage loans taken out in zlotys had an average annual interest rate of 8.7%, while similar loans denominated in Swiss francs issued by local banks had an average interest rate of 4.4%.
But many borrowers have seen their payments rise dramatically, with the Swiss franc nearly doubling in value against the złoty since the 2008 financial crisis and especially after the withdrawal of the Swiss franc from the euro in 2015.
Poland is the latest country in Europe to face a problem that Hungary, Croatia and others tackled years ago.
In 2019, the European Court of Justice (ECJ) ruled in favor of Polish borrowers who had taken out loans from Polish banks in Swiss francs. This meant borrowers could apply to Polish courts to convert their loans into local currency and thousands did. In 2017-2019, the number of Swiss franc cases in Polish courts was 21,000 but rose to 34,000 in 2020, according to data from Votum Robin.
However, the decisions of lower-level Polish courts still diverge on whether banks can charge their customers for the use of capital during the now invalidated credit, and whether, after conversion into zlotys, the new credit should be billed at Wibor rate or Libor. Swiss franc rate.
Both issues are to be clarified by Supreme Court rulings scheduled for April 13.
So far, the industry has not been willing to seek compromise. This decision will determine the potential costs to the banking industry of non-compliance. The consensus among stock analysts is losses of between 30 billion zlotys ($ 7.6 billion, 6.6 billion euros) and 60 billion zlotys.
Non-zloty loans peaked at 198 billion zlotys in 2011 and totaled 119 billion zlotys at the end of 2020. More than 430,000 households still have loans in or indexed to francs, for an amount of total obligation of $ 24.7 billion. The number, which has declined due to repayments, stands at 20% of all mortgages and 13% of total household loans, according to data from the Financial Supervisory Authority (KNF).
The more consumer-friendly the Supreme Court guidelines, the more likely the banking industry is to settle and the greater the losses it will have to bear.
“According to the ECJ, the court should take into account mainly the preference of the borrower and whether or not he wishes to continue the execution of the loan contract subject to the removal of the abusive indexation mechanism”, Michal Kaczmarzyk, partner at Consilius Adwokaci i Radcy Prawni Law Firm, said DW. “So I expect a positive response here,” he added.
“I think the answers to the last two questions – limitation period for bank claims and compensation for the use of capital – are the most important,” he continued. “If these two things are bad for the banks, it could cause an earthquake for the banking system and perhaps for the economy in general,” Kaczmarzyk said. Expert calculations of the potential losses of lenders are between 35 billion and 235 billion zlotys.
But banks could be allowed to charge Wibor rather than Libor rates for the Swiss franc, a difference that, due to differential interest rate calculations, would limit overall losses to Zl 30-60 billion, according to a study by ‘ING.
“I expect the administrative branch of the Polish Supreme Court to rule in favor of recalculating mortgages denominated in Swiss francs into zlotys (according to the formula proposed by the KNF)”, Piotr Bialowolski, associate professor at the University WSB in Poland, said DW.
“It will be politically good for the Law and Justice (PiS) party and President Andrzej Duda, because it will allow them to turn the previous decision of the ECJ (which they have to implement anyway) as a fulfillment of the promises Duda’s earlier versions of his original 2015 campaign, ”he said.
“The potential decision is also a kind of compromise that seems fair to other mortgagees, especially those who are indebted in zlotys. It will not provide any advantage to Swiss franc mortgages over other mortgagors – it suffices to ‘level the playing field for everyone, “Bialowolski argued.
Analysts don’t expect big consequences for the economy, but the currency could suffer
The Polish unit in Santander estimates that the conversion of all its foreign currency loans into zlotys as proposed by the KNF would represent a loss of 3.5 billion zlotys.
The main Polish banks have set aside 1.96 billion zlotys to pay mortgage loans denominated in Swiss francs. This is only 2% of the sector’s outstanding Swiss franc portfolio, which amounts to around 100 billion zlotys and is equivalent to around one-third of all Polish mortgages.
Santander is analyzing a proposal by KNF that lenders would offer voluntary settlements to their clients, including retrospective settlement of Swiss franc mortgages in the form of zloty loans. The Spanish bank said it would test potential settlements with its customers in the first half of 2021.
MBank and ING Bank Slaski recognize the potential losses associated with legal battles over Swiss franc loans. ING Bank Slaski increased its provisions to 35% of its non-zloty loans, about four times more than its competitors.
The local Commerzbank unit set aside a record PLN 439.5million to cover risks on its foreign currency mortgages in the last three months of 2020, likely putting the lender in the red for the quarter.
Polish financial market regulator KNF has proposed plan for banks to convert foreign currency loans into zlotys
“Such a move, in my opinion, will not pose an immediate systemic risk for the banking sector,” Bialowolski said. “The decision will likely result in lower mortgage balances for mortgagors, but most of them will not be able (or willing) to repay their debts immediately and therefore the loans will still remain profitable for the banks for years to come.” , he added.
Bialowolski said he did not expect major consequences for the economy. “Polish banks are among those with the strongest position in Europe. In addition, the impact of this decision will be spread over many years, which should allow banks to cushion the blow,” he said. he noted.
“One channel through which we might see an effect are the prices of bank stocks. Their valuation will likely decrease and this could translate into the value of retirement savings,” Bialowolski feared.