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(Bloomberg) -- Poland’s financial supervisor said it won’t coerce banks into converting Swiss-franc mortgage loans to zloty as the country seeks ways to shield borrowers from the Swiss currency’s appreciation.
Conversion of franc-denominated mortgages, which may cost as much as 25 billion zloty ($6.85 billion) spread over 20 to 25 years, needs to stem from voluntary agreements between banks and borrowers, Andrzej Jakubiak, head of the Financial Supervisory Commission, said Tuesday at a parliamentary hearing in Warsaw. The conversion can’t have “a negative, one-time impact” on banks or their clients and its effects should be spread over time, he said.
The unexpected decision of Switzerland’s central bank to end its currency cap on Jan. 15 sent the zloty tumbling 22 percent against the franc, increasing payments for about 575,000 families who borrowed in the currency. Poland’s government, central bank, markets regulators and commercial banks have conferred over the past two weeks to help ease the impact of the decision for the borrowers.
“We need to come up with a long-term response to the uncontrolled increase in debt,” Jakubiak told lawmakers. “What’s been proposed so far is a temporary palliative because it doesn’t address the jump in loan-to-value ratios.”
Jakubiak said his office is analyzing a method for converting franc loans into two zloty-denominated loans. The first would correspond to the value of the original Swiss-franc credit in zloty on the day it was extended and would be secured by the mortgaged property.
The second, unsecured loan would represent the excess value of the Swiss-franc loan at today’s exchange rate over the converted amount. Half of this difference would be paid off by the borrower, and half would be forgiven by the lender, Jakubiak said.
The proposal, if adopted, may cost the banking industry from 1 billion zloty to 1.2 billion zloty a year over 20 to 25 years, according to Jakubiak. He said the details had already been presented to Prime Minister Ewa Kopacz.
“Banks and borrowers bear equal responsibility for the present situation,” Jakubiak told lawmakers.
After the watchdog’s comments, shares in MBank SA fell as much as 6.2 percent to a 16-month low before rallying to 450 zloty, down 4.5 percent. Bank Zachodni WBK SA shares dropped 4.6 percent and Bank Millennium SA shares declined 4.8 percent, compared with a 0.2 percent gain by the Warsaw Stock Exchange’s WIG20 blue-chip index.
Since reaching a record-high of 4.4128 per Swiss franc on Jan. 15, the zloty has strengthened 12 percent to 3.9408 at 5:28 p.m. in Warsaw. The advance in itself may help resolve the franc-mortgage dilemma, which the government has no intention of paying for, Premier Kopacz told reporters today at a news conference in Warsaw.
Local banks, at a meeting at the Finance Ministry last month, offered to pass on Switzerland’s negative interest rates to borrowers, refrain from demanding additional collateral and extend loan maturities for clients having difficulty with debt repayments.
Jakubiak said today’s proposal is only a starting point for talks with the industry.
“This needs to be done through negotiations rather than legally coerced through acts of parliament,” he told lawmakers at the hearing.
To contact the reporters on this story: Maciej Martewicz in Warsaw at firstname.lastname@example.org; Konrad Krasuski in Warsaw at email@example.com To contact the editors responsible for this story: James M. Gomez at firstname.lastname@example.org David McQuaid, Paul Abelsky