Big losses for banks if Court guidelines unfavourable

Some banks “may need to recapitalise” while others “will cut back on lending,” ING Bank Śląski Economist Rafał Benecki forecasts, if guidelines on fx mortgage contract disputes expected in the autumn from the European Court of Justice are not in their favour.

The Warsaw court have asked for guidance in how to treat cases brought by borrowers against banks that granted them loans in foreign currency. The bank customers complained about how the exchange rates on the loans were calculated.

The initial opinion issued by the Luxembourg-based court was that if the conditions of the loan were unclear to customers, the offending clauses should be removed or the whole contracts could be cancelled.

One potential outcome is that the loan capital could be recalculated in PLN at the exchange rates which were available when the loans were contracted. Seeing as exchange rates have doubled since 2008 when many of the loans were taken out, banks could face potential losses of "up to PLN 60 bn (EUR 14 bn)."

According to Rafal Benecki, the knock on effect is that the banks will need to “hedge” or prepare for potential losses by buying Swiss currency. If they all do so at the same time it may lead to a drop in the value of the PLN.

“Some banks will need to recapitalise and some may need to reduce their lending,” Mr Benecki said.

According to the Polish Banking Association data, most of the largest banks in the country have little or no exposure to fx loans, including PKO BP, Pekao SA Santander and ING Bank Śląski, but some smaller banks, such as Idea Bank and Getin Noble Bank are more vulnerable.

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