Polish Banks’ Plan for Franc Debt Sets Stage for Clash With Duda

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Polish banks offered to cover potential losses on Swiss-franc mortgages, in a plan that may put them on a collision course with the country’s president-elect before general elections due by November.

With pressure building to address the 144 billion zlotys ($37.8 billion) in franc-denominated debt, 10 banks including PKO Bank Polski SA, MBank SA and Getin Noble Bank SA agreed to provide aid if the zloty weakens against the Swiss currency, Krzysztof Pietraszkiewicz, the head of the Polish Banking Association, said on Wednesday. The plan may cost lenders 350 million to 600 million zloty, he said.

The proposal fails to match a pledge by Andrzej Duda, who won Sunday’s presidential election, to convert the loans to zlotys at the rate they were taken out in. That would help the 565,000 households whose payments jumped on the zloty’s more than 45 percent loss against the franc since 2008 and stick banks with the brunt of the costs.

“This solution doesn’t in any way lower the political risk hanging over the banks,” Kamil Stolarski, an analyst at BESI Grupo Novo Banco, said by phone from Warsaw today. “There is a high probability that they will become the victim of the election campaign, and the market isn’t wrong pricing in the chance they are going to suffer.”

Duda’s idea, if carried out, would have “wide-ranging” negative consequences for the economy, Pietraszkiewicz said.

“Our solution is aimed at helping families and the poor, which is consistent with the government’s policy,” he said.

Limited Aid

Under the lenders’ proposal, the plan would take effect if the zloty weakens to between 5 and 5.33 against the franc. The Polish currency traded 0.2 percent stronger at 3.999 per franc at 5:18 p.m. in Warsaw. The Warsaw Banking Index, which has declined 7.7 percent since Duda won the first round of presidential voting on May 10, ended three days of losses to rise 0.5 percent.

The assistance from the so-called “stabilization” fund will be restricted to Swiss-franc borrowers earning less than the national average.

People seeking aid can’t have apartments bigger than 75 square meters and houses larger than 100 square meters. Those conditions would limit use of the fund to 10 percent of all franc mortgages, or 20 percent of clients, according to Pietraszkiewicz.

Mortgage holders who opt for help will be obliged to convert their loans into zloty if the domestic currency gains to around 3 per Swiss franc, Pietraszkiewicz said.

Regulator Demands

“Banks have imposed quite a narrow filter for those who want to tap the fund, so the costs for the industry won’t be large,” Dariusz Gorski, Bank Zachodni WBK SA analyst, said by phone. “However, the proposal doesn’t resolve the systemic problems related to currency risk, which was demanded by the financial regulator.”

Lenders are ready to discuss the mortgage loan issue with Duda, Pietraszkiewicz said. He also criticized Duda’s proposal to tax bank assets as dangerous for economic growth. Stolarski said that by not going further, the financial institutions may lose the ability to lead the solution on franc loans.

“What we’ve seen today is largely a repeat of their previous rhetoric and it’s now in the hands of the regulator and further down the line of politicians how this problem will be sorted out,” BESI’s Stolarski said.

Following the decision in Hungary and Slovenia to convert Swiss franc loans back into their own currencies, pressure on Polish banks to follow suit and swallow potential losses will continue to grow, central bank Governor Marek Belka said on Tuesday.

“They should prepare their capital cushions, stop paying dividends and bear the costs of currency conversion,” Belka said. “That’s all.”

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