Mortgage Loans In Poland, Fears of a Swiss Meltdown

If the Polish government prevails, the nation's banks will have to pay €5 billion in compensation to holders of mortgages denominated in Swiss francs who saw payments soar after Switzerland ended its peg with the euro. Some say the order could unleash a banking crisis.
Investors and banking industry analysts in Warsaw fear the Polish government's attempt to force the nation's banks to pay €5.2 billion to compensate borrowers of Swiss franc-denominated loans may lead to a new banking crisis.

Karl Sevelda rarely loses his Vienna charm, even in challenging situations.

But when the conversation turns to Poland, the eloquent head of Raiffeisenbank International, the Austrian bank that is strong in Eastern Europe, loses his cool.

His bank is trying to unload its Polish subsidiary, Polbank, as quickly as possible, but now Polish lawmakers are thwarting his plans.

"Banks are a pawn for politicians in Poland," the liberal CEO grumbled when presenting his semi-annual financial statements.

The Polish government wants to require banks to convert mortgage loans from Swiss francs into Polish zloty. The plans were even tightened in the Polish parliament when some members of the governing party joined forces with the opposition to introduce changes that would require banks to pay 90 percent of the costs – and not the 50 percent originally envisioned.

The legislation requires approval by the Polish Senate. Newly minted Polish President Andrzej Duda would also like to force the banks to pay up.

"The responsibility lies with the banks, because they have profited from these loans," the president, a member of Poland's Law and Justice Party, told Reuters.

The banks could see substantial losses if the law goes into effect.

The Polish financial supervisory authority estimates that mandatory conversion would cost about €5.2 billion ($5.8 billion), and some banks may require liquidity assistance from the central bank.

The Polish financial supervisory authority estimates that mandatory conversion would cost about €5.2 billion ($5.8 billion), and some banks may require liquidity assistance from the central bank.

The banks currently hold Swiss franc loans worth a total of 146 billion zloty (€35 billion). This is creating a stir beyond Poland's borders.

Many Polish institutions are majority-owned by foreign banks such as RBI, Germany's Commerzbank (mBank), Banco Commercial Português (Millennium) and Spain's Banco Santander (BZ WBK).

This has bitter consequences for Raffeisen International, which has put a sale or initial public offering for its Polish unit sale on hold.

"The forced conversion of Swiss franc loans is delaying the sale," Mr. Sevelda said. Many banks still hope that the final version of the law will be milder than expected, if only the election campaign is brought to an end.

Real estate ownership is widespread in Poland. Before the financial crisis, interest rates were lower abroad than at home. As a result, about 47 percent of all mortgage loans in Poland are denominated in foreign currencies, usually in Swiss francs.

Since Switzerland abandoned the franc's peg to the euro in January, the currency has become much more expensive against all currencies, including the Polish zloty. Polish borrowers have seen their loan payments balloon as a result.

This is what makes Swiss franc loans such a hot-button campaign issue.

"In this situation, it makes no sense to sell the bank," said Mr. Sevelda.

When a new parliament is elected on October 25, it will become clear how far Poland will follow the Hungarian example and recapitalize customers with franc loans at the expense of banks.

 

Quelle: dpa
Andrzej Duda, the newly elected president of Poland, has endorsed a controversial call to force the nation's bank to pay up to €13 billion in compensation to holders of Swiss Franc-based mortgages. Mr. Duda spoke at a celebration held at an Orthodox church shrine in Grabarka, Poland, on August 19.
(Source: dpa)

 

The Austrian Raiffeisen International chief executive is hoping for a political solution.

The Austrians are in close contact with Commerzbank and Banco Santander, the Raffeisen International chief financial officer, Martin Grüll, confirmed. Talks are also underway with the Austrian government to increase pressure on Warsaw.

The banks are hoping that the Senate in Warsaw will bury the legislation.

The European Central Bank has also criticized the Polish proposal from the start. On the one hand, the ECB finds fault with the fact that real income situation plays no role in the question of who would be granted a conversion option.

This could raise questions of equal treatment, the ECB has argued.

Besides, say the central bankers, while European Union guideline for real estate loans permit the regulation of foreign currency loans, it bars retroactive changes to a legal situation.

By mid-year, Raffeisen International still had €3.2 billion worth of outstanding Swiss franc loans in Poland.

As Mr. Grüll, its chief financial officer, explained, the problem loans could be excluded in a sale.

For the bank, Poland and Slovenia are no longer core markets in eastern Europe.

 

Ozan Demircan is a Handelsblatt editor reporting from Istanbul and Hans-Peter Siebenhaar is Handelsblatt's correspondent in Vienna. To reach them: [email protected] and [email protected]