Belka Nudges Banks to Phase Out FX Loans Before Politics

Poland’s central bank Governor Marek Belka is “nudging” banks to phase out Swiss franc mortgages before lawmakers decide to force a swap that may cause losses.

Foreign currency loans could tempt populist politicians to take a cue from Hungary’s Prime Minister Viktor Orban, who imposed billions of euros of losses on his country’s banks, Belka said in an interview in Alpbach, Austria, last week. Yet, lenders trying to convert mortgages into local currency face reluctance from borrowers unwilling to sacrifice terms that are currently favorable for them, he said.

“It’s an attractive theme for politicians of all walks of political life,” Belka said. “I appealed to the banks to do everything to massage it out and to my knowledge they are open to it, they are doing it. The problem is that the monthly installments for franc loans are lower than those in zloty and there is not much willingness on the part of the borrowers to switch into zloty and deal with the costs of it.”

Regulators have been seeking to wean eastern Europe off foreign-currency loans since the practice pushed some countries to the verge of default during the credit crisis. While such loans offer borrowers in emerging economies lower interest rates, they can lead to soaring payments if local currencies slump, as they did in Hungary, Poland, Romania and Ukraine.

The share of foreign-currency mortgages was 48 percent of all home loans at the end of June in Poland, down from 70 percent at the end of 2008, according to the Polish financial market supervisor. Franc mortgages account for 80 percent of them. Poland’s financial regulator implemented measures to ban lending in foreign currencies in 2009.

Orban’s Blueprint

Hungary’s Orban has implemented the most aggressive steps toward a wholesale conversion of franc mortgages in the last three years. Hungary imposed a $1.7 billion loss on banks in 2011 when it allowed borrowers who could afford it to repay foreign-currency mortgages at below-market rates in a lump sum.

More losses are in stock for Hungarian banks this year as they are forced to repay as much as $3.8 billion in fees they have charged for the loans, and are forecast to make losses again when the remaining stock of mortgages is converted into Hungarian forint.

“The risk for banks is less than in Hungary but still sizable,” said Belka. “The costs are really huge. We warn against any kind of wholesale solution, because that’s more dangerous for the economy than not doing anything.”

While Polish authorities encourage the banks, including market leader PKO BP, UniCredit SpA’s Bank Pekao SA and Commerzbank AG’s mBank, to swap the loans, Belka said he didn’t want to put pressure on them.

“We have met with the banks, have discussed it seriously, but I’m not prepared to discuss this in public,” he said. “We want to nudge the banks, but we don’t want to push them.”