NBP: Polish banks to lose billions from enforced Swiss loan conversions

“The total losses of banks as a result of the reduction of what debtors owe them would reach PLN 21 billion (EUR 5 billion), in other words 20 percent higher than the annual gross profits of banks affected by this legislation” the NBP wrote in the letter.

Just over half a million Poles currently hold Swiss franc-denominated mortgages. It is thought that the majority borrowed the money before the 2008 global financial crisis, when it was possible to benefit from low Swiss interest rates.

However, after the Swiss national bank removed restrictions on its currency this January the franc strongly appreciated, leaving many Poles who borrowed in this way in financial difficulties.

Under an initial version of the bill as proposed by the ruling Civic Platform party banks and borrowers would convert the loans and split the costs equally among themselves.

An amendment from the Democratic Left Alliance was unexpectedly passed, increasing the bank contribution to 90 percent.

“In some cases we can expect banks to reduce their lending activities due to capital limitations,” the NBP continued, noting that eleven banks would have losses exceeding their gross profit for the past year.

However, the NBP did comment that it is unlikely that banks will be affected enough to no longer meet regulatory requirements on liquidity.

Meanwhile, pposition party Law and Justice has its own proposals on how to help those struggling with mortgage repayments. The plan would involve banks being forced to convert Swiss-franc loans at the exchange rate from the day when each mortgage was issued. However, the Finance Ministry has claimed that this would cost banks PLN 50 billion.

State budget to be hit?

The NBP also predicted that public finances would suffer as a result of the bill.

The maximum predicted reduction in corporate tax paid by banks is PLN 4 billion (EUR 1 billion) while another PLN 380 million (EUR 91 million) will be lost from lower dividend payments by banks.

“The fall in capital will also reduce banks’ resilience, which in the event of strong external shocks would increase the likelihood of public finances needing to be used,” the NBP added. (sl/nh/rk)

Source: PAP