Poland’s banks braced for $2.5bn hit on Swiss franc mortgages

Poland’s banking sector is bracing itself for a $2.5bn hit as the fallout from the Swiss franc’s appreciation continues to hurt the country’s lenders. Seven of the country’s largest banks could see their combined pre-tax profit fall by more than a quarter, rating agency Moody’s said, under a government plan to force them to convert Swiss franc mortgages to Polish zloty.

Вank BPH, controlled by GE Capital, Commerzbank’s mBank, Banco Comercial Português’ Millennium Bank and BNP Paribas’s local unit would all be hit by the move, which is likely to be made law before October.

“The conversion . . . is credit negative for the banks because it would adversely affect their profitability and restrict their ability to internally generate capital and future lending capacity,” Simone Zampa, vice-president at Moody’s wrote in a note.

Foreign investors control more than 60 per cent of Poland’s banking industry, which has been one of the star performers of the fast-growing economy since it joined the EU in 2004, riding a boom in gross domestic product per capita and surging disposable income.

More than 550,000 Poles have mortgages denominated in Swiss francs, roughly equivalent to 40 per cent of the country’s home loans, many of which were taken out before the 2008 financial crisis when Swiss interest rates were competitively low.

But the decision by the Swiss National Bank to scrap its currency cap in January meant many mortgage holders were left struggling to meet the cost of higher repayments.

Under the proposal, brought by the ruling party looking to curry favour with voters ahead of an October general election, roughly one-fifth of borrowers will be allowed to convert their Swiss franc mortgages into zloty at the historical exchange rate when it was first issued. The bank and the borrower will then split the difference between the historical value of the mortgage and the value on the day of conversion.

Politicians, who estimate the total cost to banks could be as much as 9.5bn zloty ($2.5bn), say that they intend to make the proposal law before the election. The opposition party has mooted a more draconian measure that would see the banks bear all the cost of conversion.

After a public outcry over the impact on borrowers, Polish officials asked for help from colleagues in Hungary to study measures imposed last year by Viktor Orban, the Hungarian prime minister, forcing local banks to convert franc loans into the local forint at a preferential rate.

The index of Warsaw-listed banks has fallen 13 per cent over the past two months, as rumours of various measures to address the pressure on borrowers began circulating. In the past fortnight, shares in BGZ BNP Paribas have fallen 26 per cent and mBank’s stock hit a two-year low.

Adding to the sector’s woes, the main opposition party, which is leading in recent polls, plans to levy a 0.39 per cent tax on banking assets, a policy that rating agency Fitch reckons will cost the country’s lenders more than 6bn zloty a year.

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