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Polish banks plunge as Swiss franc mortgage bill strikes hard

06/08/2015

WARSAW, Aug 6 (Reuters) - Polish banking stocks fell heavily  on Thursday after deputies approved a bill allowing homeowners
to convert their Swiss franc mortgages into zlotys, a move which  could cost Polish lenders $5 billion.
 Financial sector regulator KNF described the vote as significant and said the impact on the banking sector's  stability should be assessed.  ID:nW8N0ZV04W 
   
More than half a million Poles have taken out Swiss franc mortgages, looking to benefit from low interest rates, but the
franc's surge this year has left many struggling to repay their loans, a central theme ahead of October parliamentary elections.
 Swiss franc mortgages are worth some 144 billion zlotys, or about 8 percent of Poland's gross domestic product (GDP).
 Deputies late on Wednesday approved an ammendment that almost doubled to 19 billion zlotys ($5 billion) the cost to
Polish banks, which last year earned a combined 16 billion zlotys.  ID:nW8N0ZV04N 
 The measure is expected to pass into law as the ruling Civic Platform (PO), which proposed the bill, also dominates the upper
chamber where the measure goes next.
 Poland's biggest banks with large Swiss franc mortgage
portfolios, including PKO  PKO.WA , Santander's  SAN.MC  BZ WBK BZW.WA , Commerzbank's  CBKG.DE  mBank  MBK.WA , BCP's  BCP.LS  Millennium  MILP.WA , General Electric's  GE.N  BPH  BPHP.WA 
and Getin Noble  GNB.WA  were hit hard.
Getin Noble was down by 22.5 percent at 09:39 GMT, others in the sector fallin between 6.5 percent and 14 percent.
 Under the proposed law, people living in apartments and houses no bigger than 100 and 150 square metres respectively,
will be able to convert their Swiss franc mortgages into zlotys at the current rate.
    Banks would calculate the difference between the value of the debt now, and the amount the borrower would have paid if
they had taken the loan out in zlotys in the first place.
  Ninety percent of the difference will be deducted from the mortgage, at the lender's expense. PO's draft bill originally
proposed a 50 percent deduction.
     
  DEEPER CUT
    Analysts had estimated the original PO draft would cost banks 9.5 billion zlotys but lawmakers adopted an amendment by
the leftist SLD party which hiked the reduction.
 "Increasing the proportion of the remitted part of the loan at the banks' expense clearily increases the potential losses
for the sector," Trigon brokerage's report said.
"We estimate that the cost for the sector may amount to 19 billion zlotys and will be spread over three years," it added.
    It was unclear if President-elect Andrzej Duda, who is backed by the biggest opposition party, Law and Justice (PiS),
will sign the bill after he is sworn in on Thursday. 
    Demands for action over Swiss franc mortgages was a hot political issue during May presidential election campaign, and
with PiS is leading in opinion polls it continues to resonate in the general election campaign.
    During his election campaign, Duda called for mortgages to be converted into zlotys at the rate which was in force at the
time the loan was taken out. 
    Some estimates put the cost of his proposal at up to 64 billion zlotys, but analysts say he would probably find a cheaper solution as his initial ideas could push some lenders out of business.
    ($1 = 3.8354 zlotys)

During his election campaign, Duda called for mortgages to be converted into zlotys at the rate which was in force at the
time the loan was taken out.