Swiss Home-Loan Switch in Poland May Pressure Zloty, ING Says

A Polish draft law that may allow mortgage holders to switch their Swiss franc loans into the local currency may weaken the zloty, according to ING Groep NV’s local unit.

The currency, which headed for its biggest weekly drop against the euro in two months, could decline if politicians go ahead with a draft law in its current form, ING Bank Slaski SA economists, led by Rafal Benecki, said in an e-mailed note. Parliament approved amendments this week to draft regulations that may double the cost for lenders of providing financial aid to holders of franc-denominated mortgages.

Banks would need to buy as much as 18.6 billion Swiss franc ($18.8 billion) within a year of the law being approved, assuming that half of the nation’s borrowers decide to switch their mortgages, ING analysts said. This would spur demand for foreign exchange and “may weaken the zloty,” they said.

The currency strengthened 0.2 percent to 4.1859 per euro by 2:58 p.m. in Warsaw, trimming this week’s drop to 1.1 percent, the most since the period ended June 5. A gauge of banking stocks in Warsaw was little changed on Friday after sliding 5.9 percent yesterday, the biggest selloff since September 2011.

Switzerland’s decision in January to abandon its policy of limiting the strength of the franc against the euro swelled the value of some franc loans above that of the properties they were used to purchase. The draft law requires lenders to take on 90 percent of the costs of currency losses, an increase from the 50 percent originally planned. The zloty has fallen 8.6 percent against the Swiss franc in 2015.

About 40 to 50 percent of franc-denominated home loans, valued at as much as 75 billion zloty ($19 billion), will be eligible for conversion into zloty, according to Marta Jezewska-Wasilewska, the head of equity research at Wood & Company brokerage, said by e-mail. In addition to shouldering possible exchange-rate losses of 17 billion zloty, banks will also need to close currency-hedging positions. The central bank should offer support to ease the burden, she said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE