The Polish parliament has passed a set of new measures to support those trapped by foreign-currency loans, but a European Tribunal decision may expose lenders to heavy losses.
The Polish parliament passed a heavily abridged version of the bill giving assistance to individuals who took out loans in Swiss francs, a popular method of mortgage lending before the financial crisis of 2008.
According to the new legislation, a fund is to be made available in the Polish Development Bank (BGK) granting assistance of up to EUR 460 per month for up to three years for those who are falling behind with their mortgage payments.
There will also be a possibility for householders with negative equity to borrow up to EUR 17,000 to cover any amount still due on a mortgage after a property has been sold.
Temporary support will also be available for troubled mortgage holders, who borrowed in Polish złoty (PLN), if they lose their source of income but have a good record of making timely repayments.
Approximately 600,000 loans were granted in Swiss francs and other foreign currencies, particularly in the period from 2000-2008, with heavy encouragement from commercial banks, who pointed to the solidity of Swiss currency (CHF) and the low-interest rates, which would make monthly repayments over a third lower than the equivalent loan in Polish złoty. In mid-2008 a Swiss franc cost PLN 2.
The only problem, however, was that the Swiss franc rose significantly after the crisis and spiked above PLN 5 in on “Black Friday” in January 2015, which brought severe problems to many borrowers, especially those whose mortgages were now “underwater”, i.e. they owed more on their apartment than it was worth. If they had borrowed PLN 300,000 (EUR 70,000) in Swiss francs valued at CHF 150,000 and managed to pay off CHF 20,000 of the capital of the loan, then the remaining CHF 130,000 was then the equivalent of PLN 650,000. Even with house prices soaring over the past three years, values have not totally caught up.
Most of those who have borrowed in francs are at the better off end of the income scale and according to the Association of Polish Banks 95 percent are good payers, which is higher than the average for the mortgage market. It is not clear, however, whether or not these figures include those whose properties were repossessed. Many mortgage holders claim that the contracts were unfair and there was undue pressure from banks to choose that specific type of borrowing instrument.
The new legislation will not right the whole market in one fell swoop, as many organisations of franc borrowers had wanted.
There had been calls for the government to enforce a compulsory recalculation of the loans into złoty or to give borrowers compensation on the losses they experienced. The main argument against that kind of solution was that it would destabilise the banks, who would have to pay compensation and lose out on predicted earnings.
There are several class action cases in progress against individual banks for misselling the Swiss franc loans, which also bring into question the conditions of the loan agreements, which also required borrowers to purchase francs at artificially high rates.
However, borrowers are putting their hope in a verdict from the European Tribunal in Luxembourg, which could question the whole legality of the Swiss franc loans idea, as francs were never passed over the table - the loans were indexed to the currency. The court could, for example, rule that the loans were actually paid out in Polish currency and that the interest is calculated in CHF, which has been a negative or zero value for several years.
For bankers, such a result could lead to losses estimated at up to PLN 600 bn (EUR 140 bn), which would potentially affect the stability of the financial system. The verdict could fall later this month, though it may be delayed until the end of the summer.