Poland at Odds Over Franc-Loans Fix Belka Calls `Pure Evil'

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  • Development Minister wants `voluntary' fix to converting loans
  • Finance Ministry isn't working on amending loan proposal

Top Polish officials sent mixed signals on Wednesday over how the government wants to defuse the challenge of $42 billion in foreign currency loans after a proposal to convert them into zloty was dismissed by the central bank governor as “pure evil.”

The Finance Ministry denied that it’s working on amending a draft law put forward by the president just hours after Development Minister Mateusz Morawiecki said the proposal was going to be changed, and that any solution should be voluntary. The current plan, if implemented, risks dragging the country into legal disputes with foreign investors, Morawiecki warned. There is no argument between the ministers about Swiss franc-loan legislation, said Marta Lau, Morawiecki’s spokeswoman.

“I hope some common-sense solution will prevail on Swiss francs,” Morawiecki said in Warsaw. “I believe that in several months we’ll get out of a political and emotional stage and move into an analytical one.”

The controversy highlights how the issue of mostly Swiss franc-denominated mortgages has become a point of contention for the ruling party as it seeks to deliver on election promises without damaging banks and the broader economy. President Andrzej Duda’s plan to make lenders accept repayment on such loans in zloty at a fixed exchange rate has received a scathing assessment from central bank Governor Marek Belka, who said it could cost 44 billion zloty ($11 billion) and push 70 percent of the financial industry into the red.

Converting Mortgages

Poland is following other eastern European countries that moved to convert mortgages denominated in foreign currencies 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.

Morawiecki said he favors resolving the issue on a voluntary basis because any other approach was risky for banks and could weaken the zloty or lead to interest-rate increases. While saying that he isn’t planning to present his own plan, the minister said Duda won’t “push” the legislation in its current form either.

The statement comes a day after Morawiecki unveiled plans to harness 1 trillion zloty for investment in manufacturing and innovation to help the nation catch up with richer European Union neighbors. While money for the multi-year program is set to come mostly from EU transfers, it also lists savings of domestic companies and excess liquidity at banks and loans as potential sources of funding.

Poland’s financial industry has already been enduring a special tax on assets, which will siphon off about a third of banks’ annual profit, and help the government raise money for its flagship program of child benefits.

The president’s draft law proposes an algorithm to set a “fair” exchange rate on mortgage payments, unless a voluntary agreement is reached. It’s currently awaiting a debate in parliament.