Polish Banks Are at a Turning Point With Franc Loans

It was too good a deal to pass up. Starting nearly two decades 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 with ballooning debt. Tens of thousands sued, and a European court issued a ruling that switched the tide in favor of the plaintiffs, prompting banks to start ratcheting up provisions for legal risks. The long-term impact on Polish banks could be severe, wiping out the equivalent of years of profits. But they may have a chance to shed that burden quicker, as the authorities pile pressure on lenders to reach out-of-court settlements.

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 ($54 billion) in 2011 and stood at 119 billion zloty in total by late 2020.