Polish Mortgage Plan Is Credit Negative for Banks, Moody’s Says

Poland’s ruling party plan to force banks to share the costs of converting Swiss franc mortgages into zloty are set to hurt their profits in the next five years, according to Moody’s Investors Service.

The proposal is “credit negative for the banks because it would adversely affect their profitability and restrict their ability to internally generate capital and future lending capacity,” Moody’s analysts Simone Zampa and Aleksandar Hristov, said in an e-mailed statement on Thursday. Polish bank stocks tumbled and their borrowing costs jumped in past weeks as the Swiss-loan proposal coincides with plans by the opposition to impose new taxes on lenders.

Lagging in opinion polls before a general election due in October, Civic Platform is introducing a bill that would allow homeowners to switch their loans into zloty at a cost to banks of as much as 9.5 billion zloty ($2.5 billion), or 59 percent of their 2014 profit. Combined pretax profits of the seven most-exposed banks rated by Moody’s, including the country’s largest PKO Bank Polski SA and Commerzbank AG’s MBank SA, could be cut by 27 percent if the law is introduced, Moody’s said.

Yields on MBank’s euro-denominated bonds due in November 2021 rose to 2.78 percent at 1:07 p.m. in Warsaw, one basis points below a six-month high. The WIGBank Index of 15 Warsaw-listed lenders has tumbled 15 percent from a May peak and set a two-year low earlier in July.

Equal Split

About 565,000 homeowners in Poland have the equivalent of $38 billion in mortgages denominated in francs. Under the proposal, borrowers will have a choice to convert franc-denominated loans into zloty, using the exchange rate from the day before their application. Banks and their customers would then equally split the difference between the historical and current values of the loan.

Even as it’s “unclear” the law is passed before elections in the proposed version, it is “increasingly probable” the industry will have to take on some cost to eliminate the risks to borrowers from foreign currency mortgages, Moody’s analysts said.

PKO, MBank, Bank BPH SA, Bank Millennium SA, Getin Noble SA, Bank Zachodni WBK SA and Bank BGZ BNP Paribas SA account for 89 percent of outstanding Swiss mortgages, Moody’s said.

PKO was little changed at 31.02 zloty in Warsaw after setting an almost four-year low hit last week, while MBank slumped to the lowest since 2013. Even after the decline, Polish lenders trade at 1.4 times book value, while their emerging-market peers in the MSCI bank index at 1.2 times.

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