Poland laid out a draft law on Friday to saddle lenders with the costs of converting Swiss franc mortgages into zlotys, a move critics say could undermine the health of what was until recently one of Europe's healthiest banking sectors. Renewed efforts to solve the problem of Swiss franc mortgages have hit Polish bank shares and weighed on the zloty, which touched a 3-1/2 year low to the euro on Friday, over worries that some banks might struggle to swallow the cost.
The draft law presented by the president's office is aimed at helping more than half a million Poles with Swiss franc mortgages and follows in the steps of Hungary, which converted such loans in the past few years, imposing heavy losses on its banks. Poland did not estimate the cost of its plan but analysts at mBank, the Polish unit of Commerzbank, said it could be as high as $8 billion.
Most of the Swiss franc mortgages were taken out in 2007 and 2008. The franc has risen by 80 percent against the zloty since then, particularly after the Swiss central bank scrapped a peg on its currency a year ago. Maciej Lopinski, a minister in the office presenting the draft, said the law envisages calculating a "fair rate" for each individual loan, which would be used to convert installments into zlotys from francs over the remaining lifetime of the loan.
Polish central bank governor Marek Belka warned in December that a simultaneous introduction of a tax on bank's assets and the conversion of Swiss franc mortgages would cause a "serious crisis" for some banks. Around 60 percent of Poland's banking sector is owned by foreign groups such as Spain's Santander, Italy's Unicredit or Germany's Commerzbank.
The bill for the asset tax, which the European Central Bank has warned might encourage lenders to engage in risky behaviour, passed the legislature on Friday and is expected to be signed into law shortly. The Polish banking sector is well-capitalised compared to western European peers, but despite impressive averages some relatively large domestic banks have low profitability and the bank tax is seen eating up all of their profits in coming years, leaving little to divert to other aims.
Shares in Poland's biggest bank PKO BP immediately slumped 3.6 percent on news of the mortgage conversion bill. The smaller Getin Noble Bank fell as much as 6 percent. "The lack of details introduces more uncertainty and speculation, which resulted in a nervous reaction," Jaroslaw Oldakowski, a broker at Millennium DM said.