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(Bloomberg) -- Polish bank executives want the country’s financial supervisor to drop a plan to convert 131 billion zloty ($36 billion) of Swiss franc-denominated mortgages into zloty, saying it would hurt the industry.
The two sides will meet Friday at 12 p.m. in Warsaw, marking a “a starting point” for talks on a plan that may cost lenders 25 billion zloty ($6.85 billion) over 20 to 25 years, said Financial Supervision Authority Chairman Andrzej Jakubiak. He proposed a voluntary conversion at the current exchange rate, with the resulting loss linked to the franc’s strength shared by banks and borrowers.
The government, which faces a general election this year, is seeking ways to ease the pain for 563,000 households holding Swiss-franc home loans after their debt repayments jumped following the surprise Jan. 15 decision by Switzerland’s central bank to lift its currency cap. The action sent the Polish zloty tumbling 22 percent against the franc.
“At this stage, we can’t even imagine this conversion because there are many complicated and unclear issues, including accounting problems and an impact on balance sheets,” MBank SA Chief Executive Officer Cezary Stypulkowski at a news conference on Thursday. “We don’t have enough details of the plan to be able to responsibly comment now and I don’t expect the meeting on Friday to end with a final conclusion.”
Shares in Warsaw-based MBank, among the biggest mortgage lenders in Poland, have slumped 10 percent since the Swiss central bank’s decision. Getin Noble Bank SA plunged 21 percent and Bank Millennium SA fell 14 percent.
Jakubiak’s conversion proposal, announced in parliament on Feb. 3, wasn’t discussed with the entire supervisory panel, central bank Governor Marek Belka said on Feb. 4. Four members of the seven-member panel are appointed by the central bank, government and President Bronislaw Komorowski.
“It’s hard for us to comment on Chairman Jakubiak’s proposal because we don’t know all the details,” Belka said. “From the central bank’s point of view, the most important thing is the stability of the banking system and our main concern is not banks’ huge profits, but the safety of deposits.”
Poland’s biggest lenders, which also include state-owned PKO Bank Polski SA, met with Belka, Finance Minister Mateusz Szczurek and market regulators last month. They agreed 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.
“What we have already discussed with leading Polish banks put the talks on the proper track and made banks understand that this is not only a problem for borrowers but also for lenders,” Belka said on Feb. 4.
Belka and Szczurek expressed doubts on whether international auditors approve of Jakubiak’s concept to spread losses linked to loan conversions over the next 25 years.
Jakubiak’s office is analyzing how to convert franc mortgages into two zloty-denominated loans.
The first loan 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 underlying property. A second unsecured loan would represent the excess value of the Swiss- franc debt at the current exchange rate over the converted amount. Half of the difference would be paid off by the borrower, and half would be forgiven by the lender, Jakubiak said.
“I’m afraid that recent proposals ... are not well- considered,” Iwona Kozera, a managing partner and the head of financial markets at advisory company E&Y. “The financial supervisor’s proposal raises many doubts concerning banks’ accounting, including the possibility of spreading losses over time. We need to find a good solution for years.”
Apart from expected losses for banks, the conversion could put pressure on the zloty “since it would be very difficult for the banks to manage loan conversions for different dates,” Raffaella Tenconi, an economist at Bank of America Merrill Lynch in London, said in a research note on Thursday.
Such an operation would require the central bank’s assistance, while it “seems to have already distanced itself from the idea,” Dariusz Gorski, an analyst at Bank Zachodni WBK SA, said in a separate note.
--With assistance from Piotr Skolimowski and Konrad Krasuski in Warsaw.
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