Polish mortgage scheme could hurt banks

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Warsaw / AFP

Poland’s controversial bid to convert foreign currency mortgages, mostly in Swiss Francs, into the local zloty currency, could “hurt” the Polish banking sector, a global ratings agency warned on Monday. Moody’s said the move by Poland’s new right-wing government would be “credit negative”, hurting the domestic banking sector’s “ability to lend and absorb future shocks”.
“It would result in one-off losses, net of annual profits, of 36 billion zloty ($9.2 billion) at the time of implementation,” a Moody’s statement said. The agency cited a Polish central bank study published last week that estimated the conversion would cost Polish banks 44 billion zloty. “The Polish banks we rate hold about 94 percent of the 138 billion zloty outstanding Swiss franc-denominated mortgage loans in the banking system, which equalled about 13 percent of total system gross loans as of September 2015,” Moody’s said.
The conversion plan was one of several campaign promises concerning the banking sector made by the right-wing Law and Justice (PiS) party that paved the way to its winning an unprecedented majority in October elections.
Last month, Moody’s also warned that a levy on banks — another PiS campaign promise — threatens not only the sector’s profitability but also the overall economic growth of this EU member.
The levy is designed to fund a raft of PiS social spending measures including a child allowance, among others.
Poland’s central bank chief Marek Belka dubbed the mortgage conversion move “pure evil” arguing it will trigger both “serious losses” for banks and “slower loan growth and a destabilised economy”.
The PiS government has pushed through several other pieces of controversial legislation, including institutional changes to the country’s constitutional court and public media that critics insist have tightened its grip on power.
The European Commission responded by launching an unprecedented probe into whether the changes violate EU democracy rules and merit punitive measures. The PiS moves also prompted the first-ever downgrade by global ratings agency Standard and Poor’s in January. Poland expects to see its economy expand by up to 3.8 per cent this year following a 3.6 per cent advance in 2015.

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