Zloty Drops to Four-Year Low as Poland Plans Swiss Mortgage Swap

  • Home-loan conversion could cost banks up to 32b zloty: MBank
  • Concern that S&P will cut Poland's outlook also hurting zloty

Poland’s zloty slid to the weakest level since June 2012 as the country unveiled a plan to convert Swiss franc mortgages and investors braced for a possible reduction in the sovereign’s credit-rating outlook.

The currency declined as much as 0.7 percent to 4.4223 per euro on Friday and traded at 4.4089 at 2:22 p.m. in Warsaw. Polish bank stocks fell along with government bonds, with the yield on 10-year local-currency notes rising nine basis points to 2.98 percent, the third biggest increase among 26 emerging-market sovereign bonds of similar maturity tracked by Bloomberg after Russia and Brazil.

The President’s office presented a draft plan on how bank clients will be able to convert Swiss franc mortgages into zloty, a move that threatens to undermine earnings of lenders already bracing for a new levy from Poland’s government, leaving key questions unanswered, according to Societe Generale SA. Standard & Poor’s may reduce its outlook on Poland’s credit rating to neutral from positive today, Bank Zachodni WBK SA said.

“The cut in Poland’s positive outlook by S&P seems to be priced in already and it’s the Swiss franc loan bill that’s crucial,” ING Bank Slaski SA economists, led by Rafal Benecki, wrote in a note on Friday.

The program, which will be assessed by the banking regulator before being sent to parliament, envisages forcing banks to accept repayment of loan installments at a “fair” exchange rate if the sides don’t agree on a voluntary conversion, Maciej Lopinski, an adviser to President Andrzej Duda, said at a press conference today. The plan’s total cost for Polish banks could reach 32 billion zloty ($7.9 billion), assuming all clients with Swiss franc loans convert them to zloty, MBank Research said on its Twitter account. That compares with the industry’s net income of 10.8 billion zloty in the first 11 months of last year.

“We’re lacking precise calculations and, what’s also important, a concrete date for when it will become applicable,” Jaroslaw Janecki, Societe Generale SA’s Warsaw-based economist said by e-mail. “It looks like it won’t be in 2016.”

About $42 billion of Polish home loans are denominated in foreign currencies, mainly in Swiss francs, representing 44 percent of all Polish mortgages. The home loans were popular in the past because they boasted lower interest rates than offered locally, but they became a bigger burden for homeowners when the franc surged after Switzerland’s decision a year ago to remove a limit on its gains. S&P, Moody’s and Fitch Ratings are due to release reviews of Poland’s rating after market hours today.

“The zloty remains under pressure and local factors aren’t helping,” Bank Pekao SA economists led by Marcin Mrowiec wrote in a note today.

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