Polish banks brace for $ 525 million hit over poorly sold Swiss franc mortgages

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* Loans in francs exploded with the rise of the Swiss currency

* Court rulings forcing Polish banks to pay bills

* Provision of banks for costs over $ 525 million

WARSAW, Sept. 4 (Reuters) – Poland’s biggest banks have set aside more than 1.96 billion zlotys ($ 525 million) in total to pay off Swiss franc-denominated mortgages, recent documents analyzed by Reuters show , after Polish courts recently ruled that many were wrong. sold to borrowers.

These provisions, however, represent only 2% of the sector’s total outstanding portfolio in Swiss francs, which, according to regulatory data, amounted to 100 billion zloty at the end of June, or about a third of all Polish mortgages.

Like other Europeans, thousands of Poles borrowed in Swiss francs to take advantage of the low interest rates available in the currency more than ten years ago. Many borrowers have seen their payments swell after the Swiss franc nearly doubled in value against the Polish zloty since the global financial crisis.

After a string of recent court rulings against the banks, Poland is the latest country in Europe to face a problem that Hungary, Croatia and others tackled years ago.

Polish banks and political parties have sought for years to avoid such a bill, but a recent decision by a Luxembourg court left them with no choice but to pay the borrowers who the courts say were misled.

Now, Polish borrowers are taking their banks to court and winning nine out of ten cases against them, according to data compiled by law firm Votum Robin Lawyers, increasing pressure on the country’s lenders as they grapple with the coronavirus crisis.

“We estimate the total cost to the banking sector at 20 billion zlotys, but there are other estimates, including by (the) association of banks, which are several times higher,” said Michal Sobolewski, analyst at BOS brokerage.

“It is a significant additional burden on banks when the economy is in the worst situation in years,” he added.

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What appeared to be one-off provisions at the start of the year became routine as the number of court cases increased and went overwhelmingly in favor of borrowers.

In 2017-2019, the number of Swiss franc cases in Polish courts was almost 21,000, but this year has risen to 34,000, according to data from Votum Robin.

So far in 2020, the biggest banks have set aside around 1.96 billion zlotys to pay for fluctuations in the Swiss franc, according to Reuters calculations based on their regulatory documents.

Every bank has its own methodology for provisioning legal risks associated with Swiss franc mortgages, and every court case is different.

Many borrowers have alleged that the credit agreements have unfair terms and in these cases the courts have widely ruled that this means they are no longer valid, resulting in early repayment of the mortgage.

Poland’s largest lender, PKO BP, said this year it had set aside 636 million zlotys in provisions for legal risks in Swiss franc court cases, while other big players such as Santander Bank Polska and mBank de Commerzbank have set aside respectively 429 million and 496 million zlotys.

The latest round of provisions came last month, when most banks released their second quarter results, although Getin Noble Bank, the latest with a large portfolio of foreign currency mortgages, is expected to release results. next week.

“The market has already taken in some of the risk, but some banks still have the potential for downside,” said Marta Czajkowska-Baldyga of Haitong IB investment bank.

However, Kamil Zubelewicz, a policymaker at the Polish central bank, said the banks could resist the pressure.

“The vast majority of banks will get away with this,” Zubelewicz said. ($ 1 = 3.7417 zlotys) (Reporting by Marcin Goclowski; Editing by John O’Donnell and Alexander Smith)

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