Poland Opts to Go Slow on Swiss-Loan Fix, Sparking Market Rally

  • Banks rally as initial costs of legislation set at $1 billion
  • Regulator to push banks to convert foreign-currency mortgages

Poland’s benchmark equities index and the zloty surged the most worldwide after a new legislative proposal spared banks the immediate cost of converting $36 billion of Swiss-franc home loans into zloty.

President Andrzej Duda’s plans envisage a gradual exchange of the mortgages into the local currency through regulatory changes, central bank Governor Adam Glapinski told reporters in Warsaw on Tuesday. In the first step of the plan, set to cost as much as 4 billion zloty ($1 billion), lenders would be forced to pay back clients for “excessive” exchange-rate spreads, Presidential aide Przemyslaw Bryksa said.

Fixing the issue of foreign-currency loans, mainly in Swiss francs, has hung over Polish lenders after Duda made helping the country’s 565,000 foreign-currency mortgage holders a key plank of his election campaign last year. His initial proposals put the bulk of the conversion costs on lenders, stalling the industry’s consolidation and making Polish banks underperform emerging-market peers.

“Our absolute priority is maintaining financial stability,” Glapinski said. The process of converting Swiss loans “will be gradual” as regulators push lenders to limit currency exposure stemming from such mortgages, he said.

The zloty traded 0.7 percent stronger against the euro at 4.3296, the biggest gainer among 31 major currencies tracked by Bloomberg, as concern ebbed that a forced conversion would feed demand for francs. Government bonds climbed and the WIG20 stock index rallied 2.2 percent, the most worldwide.

PKO Bank Polski SA, Poland’s largest lender, jumped 10 percent to 26.21 zloty at 12:21 p.m. in Warsaw, on track for the strongest advance in eight years. Bank Zachodni WBK SA and MBank SA, the third- and fourth-biggest, gained 8.8 percent and 12 percent, respectively. Lenders with larger Swiss-loan portfolios climbed even more, with Getin Noble Bank SA soaring 23 percent and Bank Millennium SA 13 percent.

Surging Franc

Poland is following other eastern European countries that moved to convert foreign-currency mortgages, which accumulated before the 2008 financial crisis as borrowers flocked to secure low interest rates. The zloty has lost half of its value against the franc in the past six years. That has made the value of more than half of such loans higher than that of the underlying property.

Foreign-currency loans aren’t currently a threat to the economy, but may grow into one over the longer-term as the zloty’s exchange rate fluctuates, Glapinski said. Duda’s plan, which will be sent to parliament within days, envisages banks returning funds to clients for currency spreads that deviated more than 0.5 percent from the central bank’s daily fixing rate. The spread costs will be capped if the value of the loan exceeded 350,000 zloty.

Glapinski said he will recommend that the country’s financial regulator levies additional capital requirements on lenders with exposure to foreign currency loans to “encourage” them to convert their mortgages into zloty “voluntarily.” Duda may resume work on a potential forced conversion of loans after evaluating the process of regulatory changes over the next year, Presidential adviser Maciej Lopinski said.

“The latest proposal is relatively pragmatic and reduces the risk that Polish banks may sustain substantial losses,” said Piotr Matys, a strategist at Rabobank in London. “It is positive for Polish assets with banks rallying and the zloty outperforming its peers.”

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