Poland Moves to Resolve $30 Billion Swiss-Loan Threat to Banks

(Bloomberg) -- Poland’s central bank moved to resolve the biggest threat to the country’s financial industry, offering commercial lenders help in converting $30 billion of Swiss-franc loans into zloty.

The banks asked the monetary authority to step in after a multitude of lawsuits over the loans forced them into mounting provisions. It’s unclear, though, how many will be willing or able to meet the stiff conditions that include halting dividends and bonuses, and reducing leverage.

Swiss-franc mortgages, popular at the start of the last decade because they were cheaper than zloty loans, became an economic and political risk after the local currency lost about half its value. That left hundreds of thousands of borrowers with ballooning debt and sparked an onslaught of lawsuits that threatened to destabilize the industry.

Shares in Polish banks declined following the central bank’s move. Commerzbank AG unit mBank SA lost 2.3% in early Wednesday trading, PKO Bank Polski SA slid 0.7% and Bank Millennium SA fell 0.8%. The zloty was little changed after briefly touching its strongest level this year against the euro.

“Potential participation of the central bank in the process should mitigate excess volatility of the zloty in case banks have to buy foreign currencies directly on the market,” PKO Bank Polski SA analysts, led by Piotr Bujak, said in a report to clients.

The announcement is the strongest indication yet that the central bank is ready to help the industry and comes after Citigroup Inc. economists warned last week that the zloty could face a “disruptive depreciation” if lenders were to suddenly rush to the market to obtain Swiss francs.

At the same time, the conditions put forward by the central bank are a bitter pill to swallow for the industry and shareholders. Polish lenders are already banned from paying dividends until the middle of the year and Ipopema brokerage analyst Lukasz Janczak said some may now be looking at a prolonged period without payouts to shareholders.

Polish Central Bank Sets High Bar for Its FX-Loan Aid: Analysts

Political Topic

Despite years of efforts, Poland has been unable to resolve the Swiss-franc lending issue, largely due to fears that any settlement may destabilize the financial industry. The WIGBank gauge of Warsaw’s listed lenders has tumbled 30% over the last 12 months, compared with a 8% decline in the broad WIG20 index.

The central bank said Tuesday that it “welcomes banks’ initiatives aimed at limiting the legal risk of foreign-currency mortgages,” adding that the conversion would be carried out on market terms. Any plan would have to involve a sufficient number of lenders to cover most non-zloty home loans, according to its statement.

Governor Adam Glapinski said last week that he’s ready to work with banks once they come up with detailed plans, while Prime Minister Mateusz Morawiecki said Tuesday that he backs a solution that’s “as fair as possible for all the parties.”

Finding an industry-led solution is becoming increasingly pressing after Poland’s top court unexpectedly announced it will issue on March 25 the most comprehensive guidance yet about how to deal with a flood of lawsuits regarding the Swiss loans. The move has soured industry efforts to iron out a model for out-of-court settlements that could affect more than 400,000 mortgage holders.

Why Polish Banks Face a Reckoning Over Franc Loans: QuickTake

Banks have been trying to hammer out a blueprint for such settlements. The country’s biggest lender, PKO, reached a “pilot” out-of-court deal last month, seeing it as a example for others. Commerzbank unit mBank SA is yet to decide whether to offer Swiss franc-mortgage holders settlements but said Tuesday it saw a “breakthrough” moment coming.

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