Poland Rushes to Cut Swiss Franc Risk With Pain-Sharing Plan

Poland's Central Bank Governor Marek Belka
Marek Belka, governor of the central bank of Poland, last year called mortgages in francs a “ticking time bomb” and urged lenders to phase them out before lawmakers decide to force a swap that may cause losses. Photographer: Piotr Malecki/Bloomberg

Poland wants domestic banks to pass on negative interest rates in Switzerland to borrowers to ease the impact of the surging Swiss franc on $35 billion of mortgages denominated in the currency.

Finance Minister Mateusz Szczurek, central bank Governor Marek Belka and market regulators met with the biggest mortgage lenders on Tuesday after Croatia proposed fixing the exchange rate on similar loans to help borrowers. Polish measures stop short of Hungarian Prime Minister Viktor Orban’s move last year to order banks to convert $14 billion of foreign-currency loans into forint to cut his country’s exposure to currency swings.

“We made it clear to banks and banks agreed to take into account negative interest rates,” Szczurek told reporters in Warsaw after the four-hour meeting. “The market risk affects both banks and their clients. A client accepts the exchange rate risk while a bank takes the risk of interest rate moves.”

Switzerland’s unexpected decision to end its currency cap last week sent the zloty tumbling 22 percent against the franc, swelling payments for about 575,000 families who borrowed in the currency, and became a hot political issue before this year’s general election in Poland.

Banks Slump

Executives of PKO Bank Polski SA, Poland’s largest lender, Raiffeisen Bank International AG’s local unit, Getin Noble Bank SA, MBank SA and Bank Millennium SA attended the meeting with the government. The lenders agreed to refrain from demanding additional collateral and extend loan maturities for clients having problems with debt repayments, Szczurek said.

Bank shares have slumped since the Swiss central bank’s decision on Jan. 15, with Getin Noble plunging 26 percent and Millennium sliding 14 percent. MBank dropped 11 percent while PKO Bank declined 10 percent. On Tuesday, Warsaw’s WIG Banking Index fell to the lowest level since September 2013.

“Banks should offer clients solutions that would sooner or later stabilize their situation,” Governor Belka told Radio TOK FM on Monday. “The currency risk that now falls squarely on borrowers has to somehow be shared by both sides.”

He ruled out forcing banks to convert loans into zloty at rates from before SNB’s decision, calling the practice “dangerous” and not “too prudent” because it would cost them more than 10 billion zloty ($2.7 billion) in losses.

Ticking Bomb

Belka last year called mortgages in francs a “ticking time bomb” and urged lenders to phase them out before lawmakers decide to force a swap that may cause losses.

The main opposition Law and Justice party said last week the government should allow borrowers to pay off their Swiss-franc loans at the Jan. 14 exchange rate, or from before the Swiss National Bank’s decision to scrap the cap.

“Allowing clients to pay back debt at an exchange rate that we had before the SNB decision would mean breaching loan contracts,” Belka said in an interview with TVN24 channel on Tuesday. “Banks would then post huge losses and a bank bankruptcy is a catastrophe.”

While Polish banks stopped granting franc-denominated home loans after the global economic crisis caused the zloty to plunge in 2008, mortgage holders in the country of 38 million are still paying off debt taken last decade when they saw the franc as a way to borrow cheaply in an environment of a strengthening zloty.

Regulatory Probe

The antitrust regulator on Tuesday started a probe into lending procedures to check whether banks unilaterally changed the terms on franc mortgages to exclude the possibility of negative interest rates, Chairman Adam Jasser told reporters.

“If our approach is that banks should share some costs, then allowing for interest rates to go below zero would mean bearing part of real responsibility,” Jasser said.

Lenders are ready to discuss contract terms with troubled debtors and will take into account negative interest rates, MBank Chief Executive Office Cezary Stypulkowski said in an interview with TOK FM on Wednesday. Deutsche Bank AG’s local unit is already offering clients to extend maturities on franc loans, according to its website.

“Nevertheless, it remains a philosophical question what happens if rates fall further and a bank margin doesn’t cover it any more,” Stypulkowski said. “That would mean a bank has to pay for the loan.”

Banks should take into account negative interest rates even if its loan margin is too low, Szczurek said on Tuesday.

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