- Duda seeks to bring costs in line with local currency loans
- Decision follows parliament's approval of new bank asset levy
Polish President Andrzej Duda proposed a law to determine a “fair” exchange rate when banks convert the equivalent of $42 billion of foreign-currency mortgages, a move that could cost lenders billions of zloty.
The draft law, which will be assessed by the banking regulator before being sent to parliament, would make banks accept repayments at a “fair” exchange rate if no agreement is reached voluntarily, presidential adviser Maciej Lopinski told reporters in Warsaw Friday. The cost for banks will be evaluated by the regulator, he said in Warsaw.
Poland is following other eastern European countries that moved to convert mortgages denominated in foreign currencies, including in Swiss francs, after they proliferated prior to the 2008 financial crisis. While allowing many borrowers to take advantage of lower interest payments, the loans exposed them to currency swings that could destabilize the banking industry, according to Poland’s financial markets regulator.
The exchange law comes on top of a decision by lawmakers on Friday to impose a new levy on bank assets that will drain 4.4 billion zloty ($1.1 billion) from lenders, or about a third of their profits from the last 12 months, the government estimates. Central bank Governor Marek Belka said on Thursday that the combination of the two measures could put some banks at risk and harm the economy.
The “fair” exchange rate will be set individually, Lopinski said. It will be based on creating an equality between zloty loans and those taken out in foreign currency. The borrower will also be allowed to hand over their property to cancel the mortgage without additional costs, presidential office lawyer Aneta Fran-Adamek said at the same press conference.
Banks will also have to return to borrowers the amount they charged customers in the past to convert zloty that exceeded the central bank’s average rate. This may cut local lenders’ net income by as much as 6.5 billion zloty, according to initial estimates of Wood & Co. brokerage’s analyst Marta Jezewska-Wasilewska.
“The scale of returned FX spreads would be enough to drive the results of the banks exposed to foreign-currency mortgages close to zero or even impose an annual loss,” she said. Getin Noble Bank SA, Bank Millennium SA, MBank SA, PKO Bank Polski SA and Banco Santander SA’s Bank Zachodni WBK SA are among those with the most exposure, she added. Banks that report a loss and enter recovery program may be exempt from new bank tax under another law.
The president’s plan is “possible” to implement but needs to be clarified based on the financial market regulator’s data, Finance Minister Pawel Szalamacha said in an e-mailed statement. The draft needs to be analyzed to determine its impact on the budget, he added.
Poland’s largest lender, PKO, declined 1.5 percent and Bank Pekao SA, the No. 2, was down 1.1 percent. Commerzbank AG’s MBank dropped 1 percent and Zachodni traded 1.9 percent lower at 12:45 p.m. in Warsaw. The WIG20 Index declined 0.7 percent.
PKO spokesman Lukasz Swierzewski and MBank’s Krzysztof Olszewski were unable to comment immediately.
Repayment became particularly difficult for Poland’s foreign-currency borrowers after Switzerland scrapped the cap on its currency a year ago. While it cost less than 2 zloty to buy one franc in 2008, it costs more than 4 zloty now. The Polish currency slid as much as 0.7 percent to 4.4223 per euro on Friday, the weakest level since June 2012, and traded at 4.4089 at 2:22 p.m. in Warsaw.
The draft law is a result of lack of banks’ agreement to the “systemic solution” proposed by the regulator early last year, watchdog spokesman Lukasz Dajnowicz said in an e-mailed comment on the proposal.
Banks will be able to deduct up to 20 percent of the new bank tax after incurring the cost of new legislation, presidential aide Przemyslaw Bryksa said at the press conference.