Polish banks plunge as regulators’ FX-loan plan revives woes

Bloomberg

Polish bank shares tumbled on Monday as the country’s watchdogs are seeking to impose higher capital requirements aimed at encouraging lenders to ditch foreign-currency home loans.
The WIG Bank gauge slumped 1.7 percent as of 11:36 a.m. in Warsaw, led by MBank SA and Bank Millennium SA, sliding from a one-year high reached last week. Lenders should lift risk weights and boost safeguards against potential losses from bad debts when calculating their exposure to foreign currency loans, the Financial Stability Committee said late on January 13. It also unexpectedly recommended all Polish banks to introduce a “systemic risk buffer” of 3 percent of their capitals to convert $36 billion of such mortgages into zloty.
The recommendations “reinstate risk aversion towards banks exposed to such loans and put pressure on their share prices,” Dariusz Gorski, an analyst at Bank Zachodni WBK SA said in a note. “The old demons are returning.”
The committee, consisting of representatives of the National Bank of Poland, the financial market watchdog and the Finance Ministry, was last year tasked by President Andrzej Duda with pulling banks away from these loans. These mortgages, popular in the last decade as less expensive alternative to fund home purchases, became a bigger burden for Poles after Swiss central bank decided to abandon its cap on the franc in start of 2015.
The debate over how to help the country’s 565,000 foreign-currency mortgage holders has pummeled banking shares in past two years, with investors given some respite in December which was fueled by broader capital inflows to the Polish stock market. Banks with exposure to non-zloty home loans include the country’s biggest lender PKO Bank Polski SA, Commerzbank AG’s MBank, Millennium and Getin Noble Bank SA.
New measures may reduce banks’ ability to pay dividends and impede lending, according to analysts, including Zachodni’s Gorski. They also said it’s not clear whether a systemic 3 percent buffer will replace existing add-ons or will be treated as additional burden, potentially driving banks to build up their capital cushions. Lukasz Swierzewski, a spokesman for the Finance Ministry, which has a leading role in implementing new rules, had no immediate comment when reached by phone.
The committee said loans should be restructured voluntarily with the agreement of borrowers, while additional taxation was ruled out.