We don’t see a major threat from FX loan decision: central bank head

The National Bank of Poland (NBP)’s analysts see little threat to the banking system or to the economy from the upcoming The European Court of Justice (ECJ) verdict on how courts should rule on FX mortgage contracts, which are being challenged by borrowers across Poland, NBP Chairman Adam Glapinski said on Wednesday.

The European Court of Justice (ECJ) verdict on FX loans guidelines, due to be released on Thursday, will not shake the Polish banking system, the National Bank of Poland head said.

The National Bank of Poland (NBP)’s analysts see little threat to the banking system or to the economy from the upcoming European Court of Justice (ECJ) verdict on how courts should rule on FX mortgage contracts, which are being challenged by borrowers across Poland, NBP Chairman Adam Glapinski said on Wednesday.

Borrowers who ended up with negative equity or had grievances about the rates of exchange banks offered them when making repayments on mortgages indexed in Swiss francs have been taking lenders to court.

Polish courts who were unclear on how to assess the loans approached the ECJ for guidance. The initial guidelines they received instructed them to find in favour of the consumer where the contract articles are unclear or impermissible. The Luxembourg-based court is to release detailed guidelines on Thursday morning.

Despite warnings from the Polish Association of Banks and other analysts that the scale of potential losses for banks could be in the tens of billions of euro, Mr Glapiński said that the internal analysis teams of most major institutions are downplaying the effects.

“The Polish “Banking sector is in a very good condition,” Mr Glapiński told a press conference following the Monetary Policy Council’s October meeting on Wednesday. He reminded journalists that “not all banks will be affected, and not all banks have the same exposure”. Additionally, Glapiński said that not all of the loans indexed in foreign currency were being challenged and that to date most court cases challenging articles in fx loans contracts had actually found in favour of the banks rather than the customers.

Taking out a mortgage in Swiss francs or euro was particularly popular in Poland in the run-up to the financial crisis, when the PLN/CHF exchange rate was very favourable at 2:1 - nearly twice as high against CHF as the current 4:1 exchange rate.

Many borrowers found themselves “underwater” when the zloty value plummeted and with it property prices, leading to a number of repossessions. That was when court cases started about the unfair conditions offered by banks along with accusations of misselling loans for which there was a great deal of currency risk, without giving sufficient information.

The issue became a political “hot potato” before the last presidential elections in 2015, at which point Andrzej Duda, the victor, made it a point of honour to sort out the issue in favour of consumers.

The resulting presidential “fix’ met with fierce opposition from banks, and under pressure from regulators, attempts to offer compensation to householders were watered down significantly, with the issue being left in the hands of the courts.

Not everyone in Poland is in favour of the Swiss franc borrowers being compensated. For several years prior to the crisis buyers who borrowed in PLN saw their interest rates rise significantly to as high as 10 percent, at a time when the Swiss franc borrowers were paying two percent.

The issue to be resolved is whether Swiss franc borrowers were misled and whether the exchange rates offered were allowable according to the regulations. The guidelines may recommend that courts declare the contracts null and void or declare that the principal of the loans was in PLN rather than CHF, both of which would be expensive for lenders.

The Monetary Policy Council left reference interest rates unchanged at 1.5 percent. It is now over 1,600 days since the last change, which is unprecedented in Europe.

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