Poland’s Proposal for Swiss-Mortgage Relief Sinks Lenders

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Poland’s ruling party unveiled plans to force banks to share the costs of converting Swiss franc mortgages into zloty, extending a selloff in listed lenders.

Lagging in opinion polls before a general election due in October, the 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. The WIGBank Index of Polish lenders declined for a sixth day, setting a two-year low.

The government is under growing pressure to help its middle-class voters struggling with payments that have risen alongside a surge in the Swiss currency. The banking industry, where foreign owners control 62 percent of the assets, is increasingly targeted in the election campaign, with the leading opposition party seeking to impose more taxes amid calls for increasing domestic ownership of lenders.

“We’re reducing the currency risk faced by clients,” Krystyna Skowronska, a lawmaker from Civic Platform, said at a news conference in Warsaw. “We’re addressing this program to those who need it most.”

Book Value

Bank Millennium SA dropped 4.6 percent to an almost two-year low of 5.85 zloty on Wednesday while MBank SA, a unit of Germany’s Commerzbank AG, closed 2.2 percent lower at 374.6 zloty, the least since June 2013. Even after the slump, Polish lenders trade at 1.4 times book value, while their emerging-market peers in the MSCI banks index at 1.2 times.

About 565,000 homeowners in Poland have the equivalent of $38 billion in mortgages denominated in francs. Civic Platform’s plan is limited to those with smaller homes and envisages 60,000 borrowers taking part through 2020.

Borrowers will have a choice to convert franc-denominated loans into zloty, using the exchange rate from the day before their application, according to the bill. Banks and their customers would then equally split the difference between the historical and current values of the loan.

The proposal doesn’t “threaten” the stability of the banking industry, Lukasz Dajnowicz, a spokesman for the financial market regulator, said in an e-mailed statement.

The conversions will be spread over time to prevent “any turmoil in the banking industry” and allow it to absorb the costs, fellow Civic Platform lawmaker Jacek Brzezinka said.

Surging Franc

Poland is following other countries in eastern Europe, including Hungary and Romania, which already moved to convert mortgages denominated in foreign currencies after they proliferated before the 2008 financial crisis. While allowing many borrowers to take advantage of lower interest payments, those loans also exposed them to currency swings.

The problem became especially acute after Switzerland scrapped its cap on the currency in January. The zloty, which traded below 2 per franc in 2008, is now worth only about half that as the franc has surged.

For the opposition Law & Justice, which is leading in opinion polls ahead of the parliamentary election, the plan doesn’t go far enough in offering relief to mortgage holders and is geared more toward banks, said Henryk Kowalczyk, a lawmaker and one of his group’s economic experts.

Competing Plan

“We have an election campaign so the Civic Platform is just trying to show that they are doing something,” he said in an interview in Warsaw. “We’re ready to sit down and discuss the plans, maybe we’ll be able to improve them.”

A competing plan by President-elect Andrzej Duda, also from Law & Justice, would cost banks about 50 billion zloty, according to Finance Ministry estimates. Under this proposal banks would be forced to convert Swiss-franc loans at the exchange rate from the day the mortgage was issued. Law & Justice is also planning to raise 5 billion zloty from a new tax on bank assets if it wins power.

Lukasz Swierzewski, spokesman for Poland’s largest bank PKO Bank Polski SA, declined to comment on the proposal. MBank SA’s spokesman Krzysztof Olszewski had no comment.

“The devil is in the details and the new proposal would require participation of public institutions, including the central bank or the Finance Ministry,” Mariusz Zygierewicz, director at the Polish Banks Association, said by phone. “When you add up conversion costs to planned new taxes, the industry’s stability will be endangered.”