Poland Starts Work on Toughening Banks’ Swiss-Franc Burden

  • Financial Stability Committee discussed Duda’s plan Wednesday
  • Poland aims to lessen franc debt burden for borrowers

Poland’s Financial Stability Committee kickstarted work Wednesday on stepping up capital requirements for banks holding foreign-currency home loans, part of a plan to unwind the country’s $36 billion in non-zloty mortgages.

The proposal, presented by President Andrzej Duda’s office last week, envisages a gradual conversion of mortgages as regulatory changes make holding loans denominated in currencies like the Swiss franc unattractive, as well as a draft law forcing lenders to repay clients as much as 4 billion zloty ($1 billion) for “excessive” exchange-rate spreads. Stocks and the Polish currency rallied on the day the proposal was unveiled as investors bet the solution will be less costly than assumed under an earlier plan.

The committee will now focus on hammering out moves to “tighten the screw on banks” and push them into converting loans into zloty, according to the central bank’s governor, Adam Glapinski. On Wednesday, the central bank hosted the meeting of the committee, which includes the Finance Ministry, the financial markets regulator and the Banking Guarantee Fund.

The body selected a task force that will focus on the issue of mostly Swiss franc-denominated home loans, the central bank said in an e-mailed statement. Its recommendations would need to be approved and implemented by the Finance Ministry.

Mitigating Risk

The task force will work on a framework for restructuring non-zloty loans, based on voluntary agreements between banks and borrowers. It may propose increasing risk weights for foreign-currency mortgages, which will effectively impose higher capital demands on those banks that hold them. Currently, risk weighting for such assets stands at 100 percent in Poland, well above the 35 percent level in the European Union, according to the Polish financial market watchdog.

While the plan is “fundamental” for the nation’s financial stability, it also gives lenders “time and room for active management of the currency risk to gradually mitigate it,” Zdzislaw Sokal, a member of the Financial Stability Committee, said in an interview on Monday.

The issue of non-zloty loans has hung over Polish lenders for months and put a drag on their consolidation efforts after Duda made helping the country’s 565,000 foreign-currency mortgage holders a key plank of his 2015 election campaign. Glapinski said last week that he asked Duda to let the central bank take care of the problem to ensure the industry remains stable amid near-zero or negative global interest rates, the crisis in Italian banks and potential fallout from the U.K.’s vote to leave the European Union. 

The Financial Stability Committee holds its next meeting in the fourth quarter, the central bank said Wednesday.

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