Polish Banks Slump as Mortgage Cost Concern Spurs Trader ‘Panic’

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Polish banks slumped after parliament approved amendments to a draft law that may double the cost for lenders of providing financial aid to holders of Swiss-franc mortgages.

The decision late Wednesday pushed the shares of PKO Bank Polski SA, the nation’s biggest lender, to the lowest level in more than six years and wiped 19 percent off the market value of Getin Noble Bank SA. The benchmark WIG20 Index slipped 2.8 percent, the most of any gauge in the world on Thursday.

“The amendment passed last night was a total surprise,” Pawel Czuprynski, an equity trader at Erste Securities in Warsaw, said by e-mail. “It was very hot at the market open. At some moments trading was at panic levels.”

Poland’s banks have become political pawns in the run-up to October parliamentary elections as the opposition and government seek to win favor with voters by easing conditions for borrowers and imposing levies on lenders. Yesterday’s bill amendment, opposed by the ruling Civic Platform party, makes banks almost entirely liable for the cost of supporting mortgage holders burnt by the Swiss currency’s surge. Bank expenses may double from the 9 billion zloty ($2.34 billion) originally estimated.

“We lack any predictability of the banking legislation,” Jaroslaw Niedzielewski, a money manager at Investors TFI SA in Warsaw, said by e-mail. “Lawmakers are rattling off the bill, with no precise calculation of its cost. They just want to show they did something with the Swiss-franc problem.”

Swiss Pain

Switzerland’s decision in January to abandon its policy of limiting the strength of the franc against the euro swelled the value of Swiss-franc loans on Polish banks’ books, driving the value of some loans higher than that of the properties they were used to purchase.

Under the new version of the draft law proposed by the Democratic Left Alliance, banks will share 90 percent of costs, an increase from the 50 percent originally planned. The fix still needs to be approved by the upper house and signed by the president. The Senate’s next meeting is scheduled for Sept. 2-3.

“The increase of the proportion distinctly raises the potential loss for the industry,” Maciej Marcinowski, an analyst at Trigon brokerage in Warsaw, said in a note to clients. “Now more mortgage holders will be able to benefit from the law.”

Capital Shortfalls

Trigon sees the cost for banks rising to 19 billion zloty over three years. It also said that Getin Bank and Bank Millennium SA would suffer the most. Some lenders may even face capital shortfalls if the bill is approved, according to analysts at Wood & Co.

Getin Noble’s drop was the biggest on record, while Millennium sank 13.5 percent, the steepest decline since November 2009. The volume of Getin shares traded was more than 20 times the three-month average, data compiled by Bloomberg show. Those moves saw the stock exchange’s banking index tumble 5.9 percent, the most since September 2011.

The sell-off in Warsaw also affected the foreign owners of local lenders. Raiffeisen Bank International AG, which plans to sell its Polish business to boost capital ratios, fell as much as 4.6 percent in Vienna. Banco Comercial Portugues SA, Millennium’s owner, declined as much as 7 percent.

Lukasz Dajnowicz, a spokesman for financial markets supervisor KNF, said changes in the bill are “significant” and their impact on the industry’s stability has yet to be calculated.

Zloty Falls

Officials for Millennium and PKO weren’t immediately able to comment when reached by phone. One-third of Getin’s 3.6 billion Swiss-franc ($3.67 billion) mortgage loans would be eligible for conversion under the new rules, Chief Executive Officer Krzysztof Rosinski said on a conference call. The lender’s Tier-1 ratio would drop to as low as 8 percent and any potential share sale would depend on the regulator’s requirements, he said.

The zloty lost as much as 20 percent of its value against the franc when the cap was lifted. The Polish currency was still about 10 percent weaker on Thursday and traded down 0.5 percent against the euro at 4.1979.

The additional cost of the change could be as much as 8 billion zloty, Krystyna Skowronska, a lawmaker from the ruling Civic Platform party, said by phone. Skowronska said she hoped the upper house of parliament, where Civic Platform has a majority, would be “very reasonable” when voting on the bill.

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