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Polish banks prepare for $525 mln hit for mis-sold Swiss franc mortgages

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09/04/2020 | 02:00am EDT

* Loans in francs ballooned as Swiss currency rose

* Court rulings forcing Polish banks to face bill

* Banks provision for costs of more than $525 million

WARSAW, Sept 4 (Reuters) - Poland's top banks have set aside more than 1.96 billion zloty in total to pay for Swiss franc-denominated mortgages, recent filings analysed by Reuters show, after Polish courts recently ruled many were mis-sold to borrowers.

These provisions, however, represent just 2% of the sector's entire outstanding Swiss franc portfolio, which regulatory data shows totalled 100 billion zloty at the end of June, equivalent to around a third of all Polish mortgages.

Like other Europeans, thousands of Poles borrowed in Swiss francs to take advantage of low interest rates available in the currency more than a decade ago. Many borrowers have seen their instalments balloon after the Swiss franc almost doubled in value against Poland's zloty since the global financial crisis.

After a series of recent court rulings against the banks, Poland is the last country in Europe to face up to a problem which Hungary, Croatia and others tackled years ago.

Polish banks and political parties sought for years to avert such a bill, but a recent decision by a Luxembourg tribunal has left them little choice but to pay out to borrowers who, the courts say, were mislead.

Now Polish borrowers are pursuing their banks in the courts and winning nine out of 10 cases against them, data collated by law firm Votum Robin Lawyers shows, increasing pressure on the country's lenders as they grapple with the coronavirus crisis.

"We estimate the entire cost for the banking sector at 20 billion zloty, but there are other estimates, namely by (the) bank association, that are several fold higher," Michal Sobolewski, an analyst with BOS brokerage, said.

"This is an additional significant burden for banks when the economy is in the worst shape in years," he added.

ROOM TO FALL

What seemed like one-off provisions at the start of the year have become routine as the number of court cases increased and mostly went in favour of the borrowers.

In 2017-2019 the number of Swiss franc cases in the Polish courts was almost 21,000 but has risen this year to 34,000, Votum Robin's data shows.

So far in 2020 the biggest banks have set aside around 1.96 billion zloty to pay for the Swiss franc currency swings, Reuters calculations based on their regulatory filings show.

Each bank has its own methodology when it comes to provisioning for the legal risks linked to the Swiss franc mortgages, and every court case is different.

Many borrowers have alleged that credit agreements involved abusive clauses and in these cases the courts have largely ruled that this means they are no longer valid, resulting in an early repayment of the mortgage.

Poland's biggest lender PKO BP said this year that it had made 636 million zloty in provisions for legal risks connected with Swiss franc court cases, while other big players such as Santander Bank Polska and Commerzbank's mBank have set aside 429 and 496 million zloty respectively.

The latest round of provisions were last month, when most banks reported their second quarter results, although Getin Noble Bank, the last with a large foreign currency mortgage portfolio, is due to release its earnings next week.

"The market has already priced in some of the risk, but there are some banks that still have a potential for a fall," Marta Czajkowska-Baldyga of investment bank Haitong IB said.

However, Kamil Zubelewicz, a policy maker at the Polish central bank, said banks could withstand the strain.

"The vast majority of banks will cope," Zubelewicz said. ($1 = 3.7417 zlotys) (Reporting by Marcin Goclowski; Editing by John O'Donnell and Alexander Smith)


Stocks mentioned in the article
ChangeLast1st jan.
BANK MILLENNIUM S.A. 0.93% 2.16 End-of-day quote.-63.08%
BNP PARIBAS BANK POLSKA S.A. -1.19% 33.1 End-of-day quote.-51.32%
GETIN NOBLE BANK S.A. -1.46% 0.1616 End-of-day quote.-46.13%
IDEA BANK S.A. 4.39% 1.428 End-of-day quote.-40.50%
MBANK S.A. -3.75% 115.5 End-of-day quote.-70.34%
POWSZECHNA KASA OSZCZEDNOSCI BANK POLSKI SPÓLKA AKCYJNA 0.29% 18.955 End-of-day quote.-44.99%
SANTANDER BANK POLSKA S.A. -1.60% 123 End-of-day quote.-59.99%
VOTUM S.A. -4.21% 10.25 End-of-day quote.-27.30%
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