Poland’s Swiss-Loan Fix Still Far Off Amid Plethora of Proposals

Updated on
  • President’s advisory panel to choose leading options next week
  • Central bank may buy bank shares to help cover losses: report

A flood of proposals aired in past days on how to unwind Poland’s $35 billion Swiss franc-mortgage burden has done little to ease uncertainty over the planned move.

President Andrzej Duda has a team of advisers reworking the planned bill after his initial proposal was called “pure evil” by central bank Governor Marek Belka and a “recipe for disaster” by the financial market regulator. The new plans, set to be ironed out as soon as next week’s meeting of Duda’s aides, are expected to show “tempered” costs for the banking industry, which would be spread out over time and possibly central bank involvement, according to Maciej Marcinowski, an analyst at Trigon Dom Maklerski SA.

The “most likely” scenario assumes banks will convert outstanding mortgages into zloty at the exchange rate from the day they were granted, and receive support from the central bank in the form of purchases of non-voting, non-dividend shares, Gazeta Wyborcza newspaper reported on Friday, citing sources it didn’t name. However, Slawomir Horbaczewski, a member of Duda’s advisory panel, told Bloomberg that he wasn’t aware of such a project. Przemyslaw Bryksa, another aide, said the team’s goal is to come up with “different proposals” for Duda, who will then make the final decision.

“This uncertainty isn’t good,” Dariusz Gorski, an analyst at Bank Zachodni WBK SA, said by phone on Friday. “Even when the President picks one solution, this will still only be a starting point. A lot may happen to the plan before it gets approved by parliament.”

‘Wholesale’ Solution

The WIGBank gauge of 15 Warsaw-listed lenders lagged Warsaw’s all-share WIG index on Friday, gaining 1.4 percent at 3:21 p.m. in Warsaw after falling for three of the previous five sessions. Banking stocks have dropped 23 percent in the past 12 months, compared with a 17 percent decline in the WIG and a 13 percent drop in emerging-market stocks.

Horbaczewski said he’s against engaging state money in the Swiss-loan fix and sees no need to come up with a “wholesale” solution that would require the central bank’s intervention. Fellow Duda adviser, Marek Dietl, proposed a voluntary conversion of franc mortgages at a so-called “fair rate,” which would cost banks as much as 18 billion zloty ($4.6 billion), or 125 percent of last year’s profit by the banking industry, Dziennik Gazeta Prawna reported on May 31.

For a story on a central bank’s role in a CHF plan, click here.

Poland’s Bank Association put forward a counter-plan, offering to only apply help to borrowers with high debt servicing costs relative to their income, which Witold Modzelewski, who heads Duda’s panel, said was “too selective” and didn’t resolve the “essence” of the currency miss-match problem for lenders and borrowers.

Swiss Shadow

Plans to convert foreign-currency loans to zloty have cast a shadow over Poland’s financial industry for more than a year, weakening bank valuations and hampering mergers. The financial market regulator calculated that Duda’s initial proposal to assist the nation’s 535,000 foreign-currency borrowers would cost banks at least 44.6 billion zloty and tip two-thirds of them into the red.

In the scenario described by Wyborcza, banks will cover the costs of a voluntary conversion and borrowers will need to return money they saved because of lower interest rates on Swiss franc loans compared with those in zloty. Banks would have the option of buying back shares sold to the central bank, or another state entity, for 20 to 30 years.

A large-scale unwinding of the loans could sink the zloty and destabilize lenders, requiring a “significant part” of Poland’s reserves to be channeled to banks or into liquidity-boosting swap deals, Belka told Bloomberg this week. Still, tapping the central bank’s coffers, or purchasing shares in commercial lenders may undermine the monetary authority’s credibility, said Piotr Kalisz, an economist at Citigroup Inc.’s unit in Warsaw.

“The involvement of the central bank may affect its reputation and this may have
negative consequences on market volatility, risk premium and rating agencies decisions,” Kalisz said in a note on Friday. “Therefore, the whole program would need to be well prepared in order to minimize uncertainty and also to make it clear that the central bank’s independence is assured.”

— With assistance by Marek Strzelecki, and Konrad Krasuski

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