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Why Polish Banks Face a Reckoning Over Franc Loans

Swiss Francs As National Bank's Foreign Currency Investments Rise
Photographer: Chris Ratcliffe/Bloomberg
Updated on

It was too good a deal to pass up. Starting more than a decade ago, Poles got the opportunity to take out mortgages denominated in Swiss francs with interest rates less than half the prevailing level for loans in Polish zloty. More than a million people jumped at the chance. Then in 2015, the Swiss unpegged the franc from the euro and it surged in value, just as the zloty was weakening. Some loans doubled in zloty terms, leaving homeowners struggling to pay. Thousands sued, and a European court has issued a ruling that may afford them relief. The long term impact on Polish banks could be severe, wiping out the equivalent of four years of profits.

For decades, Switzerland boasted some of the world’s lowest interest rates, so franc loans were a way for Polish and other eastern European consumers to escape high borrowing costs in their home countries. In 2008, mortgages taken out in zloty had average annual interest rates of about 8.7%, roughly twice that of similar Swiss-franc loans issued by Polish banks. As the global financial crisis pushed borrowing costs in Western countries toward zero, rates on new franc loans fell to 2.7% in 2010, central bank data show. The loans were offered by banks throughout eastern Europe, not just Swiss lenders. In Poland, non-zloty loans peaked at 198 billion zloty in 2011 and currently stand at 127 billion zloty ($32 billion) in total.