No Honeymoon for Polish Central Banker Amid Swiss-Loan Risksby
Issue of financial stability eclipsing rates, Glapinski says
Poland gripped by crisis, debates converting loans into zloty
As Adam Glapinski takes over as the head of Poland’s central bank, he is stepping into a job with shifting priorities.
The 66-year-old economics professor won parliamentary approval on Friday to replace Marek Belka, after spending the past six years as a member of Poland’s Monetary Policy Council. Topping the next governor’s agenda are risks to financial stability as Poland’s authorities plan to convert $36 billion in Swiss franc-denominated mortgages into zloty, with banks set to pick up most, if not all, of the tab.
With Poland’s economy growing at one of the European Union’s fastest rates and no upward pressure on prices, keeping official borrowing costs stable is the “right move” for the time being, Glapinski said on Friday. The challenge of safeguarding the financial system may eclipse borrowing costs in importance in two to three years, the incoming governor said during his parliamentary hearing last month.
“Financial stability, led by the issue of Swiss franc loans, has definitely stayed at the forefront,” Marcin Kujawski, an economist at BNP Paribas SA, said by phone. “Even if Glapinski already declared that he wouldn’t like the central bank to be involved in solving that, the problem is still a serious threat for the Polish banking sector and the new governor can’t disregard it.”
The cost of converting the mainly Swiss-franc loans has hung over the nation’s banks for a year, adding to their troubles after the cabinet, led by the Law & Justice party, imposed the EU’s highest tax on lenders. Belka was a vehement opponent of plans to help the country’s foreign-currency borrowers at lenders’ expense, saying in January that President Andrzej Duda’s legislative proposal at the time was “pure evil.” The president is set to submit a bill on the issue to parliament this month, his spokesman said.
“The actions taken to fix foreign-denominated loans may, under some scenarios, undermine the stability of the banking industry and the central bank has to take this into account,” Glapinski told reporters on Friday. “I assume the bill will be good enough to avoid destabilizing the economy,” but if the legislation “threatened the zloty’s stability, I would be obviously very worried.”
Parliament voted 284 to 124 with 34 abstentions in favor of Glapinski, with 57 opposition lawmakers joining the ruling party in support of the nominee. Glapinski won’t officially start his six-year tenure until he’s sworn in, a ceremony that hasn’t yet been scheduled. Belka’s six-year term ended on Thursday.
Glapinski is taking charge with the nation gripped by a political crisis. S&P Global Ratings has warned that Law & Justice’s push to exert greater control over the state threatened the independence of institutions, “most importantly” the central bank, as it unexpectedly downgraded Poland’s credit rating in January. Moody’s Investors Service followed last month by lowering the sovereign’s outlook to negative.
The choice of Glapinski may go a long way toward restoring a measure of calm. The first internal pick to head the National Bank of Poland in the country’s modern history, he also has close ties to the leadership of the ruling party. Glapinski has spoken out in defense of the central bank’s independence, saying it’s “deep-rooted” and won’t buckle under political pressure.
Opposition lawmakers weren’t so certain. “Independent institutions are a dying breed under Law & Justice,” Izabela Leszczyna, a former deputy finance minister from the Civic Platform party, told lawmakers on Friday. Ryszard Petru, a former bank economist who leads the Nowoczesna party, said he had “serious concerns that there will be pressure on the central bank to start printing money to fulfill political promises.”
Poland’s benchmark rate has been on hold at 1.5 percent for more than a year, as a record run of deflation did little to slow an economy growing at an annual clip of more than 3 percent. Glapinski and the new members of the policy council, picked by the ruling party and the president this year, have endorsed the pause, arguing the central bank needs to leave room to respond to potential shocks.
The nominee has said that central-bank borrowing costs “may have reached bottom” after declaring a three-year easing cycle over in March 2015. The Polish currency is the second-worst performer this year among its peers in developing Europe, according to data compiled by Bloomberg. The yield on Poland’s 10-year government bond stands at 3.12 percent, 54 basis points higher than last year’s low.
As the debate on loan conversion casts a shadow over monetary policy, Glapinski has said that he favors shifting powers to oversee financial markets to the central bank. The outgoing governor warned this month that a large-scale unwinding of the loans could sink the Polish currency and destabilize lenders.
“Glapinski is facing uneasy tasks,” Belka said. “Of course, I’m not talking about interest rates. It’s the banking system and financial stability that matter the most.”