Tuesday

10th Dec 2019

Thousands of Poles hit by Swiss franc decision

  • Almost 600,000 Poles have mortgages denominated in Swiss francs (Photo: metaphox)

Last week’s decision by the Swiss Central Bank to scrap its currency cap has had major repercussions in the EU’s largest eastern member state, Poland.

The move saw the Swiss franc jump to 4.32 zlotys from 3.53, a rise of more than 21 percent and the most significant in comparison to other European currencies.

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For a while it even reached 5.14 zlotys, but Monday (21 January) it was around 4.30. This was a dramatic turn for the almost 600,000 Poles who have mortgages denominated in Swiss francs – particularly as most of them took their loans when the Swiss franc cost 2.50 zlotys.

“It was a very surprising decision by SNB which caused panic on the financial markets. This move couldn’t have been predicted especially since only one month ago the Swiss National Bank was claiming that it would keep the Swiss franc/euro rate stable,” Bartosz Sawicki, a financial analyst, told EUobserver.

The overall value of credit in Swiss francs, which constitute around 40 percent of all mortgages in Poland, jumped from 131bn zlotys up to 157bn, according to The Polish Bank Association.

For a household, it means that the average monthly installment, which was around 2,000 zlotys in October 2014, suddenly jumped by a fifth.

If the Swiss Franc reaches 5 zlotys it will cause a monthly installment hike of one third.

That is too much for an average household to deal with.

“This may lead to a sudden increase in the number of consumer bankruptcy. We had 21,000 endangered loans last year,” says Sawicki.

Threat to banks

This could also be a threat to some Polish banks, such as Millennium Bank and Getin Noble, which had a large portfolio of Swiss-denominated mortgages.

Poland’s financial markets regulator, KNF, issued a statement saying that even if the Swiss franc reaches the 5 zloty level there is no systemic risk for the bank sector as it can absorb the difference.

But Sawicki, an independent professional, is a bit more sceptical.

“The road to stabilising the exchange rate is going to be rough especially since we have such important events, like the Greek parliamentary election (on 25 January) which may again shake the markets,” he notes.

He added that a “very optimistic scenario” would see the Swiss franc at 3.8 zlotys at the end of this year.

Consumers pay

The sudden appreciation of the Swiss franc has been seized by the opposition parties, with Poland set for presidential and parliamentary elections later this year.

Jaroslaw Kaczynski, the leader of the biggest opposition party Peace and Justice, argues the problem should be solved using a Hungarian model – a currency conversion on a strict exchange rate for all credits in Swiss francs.

This was done in Hungary in November last year to ease the financial burden for 600,000 Hungarians in a country of 10 million people.

No need to freeze the rate

However Polish finance minister Mateusz Szczurek Tuesday said there is no need to freeze the Swiss Franc exchange rate.

"This is the normal risk related to foreign currency loans. The burden lies both on the banks and the borrowers. While taking such credit the client agrees to take the risk of the exchange rate's changes while the bank agrees to bare the costs of the interest rate's changes. This is a fair deal"

The Swiss manuoeuvre is also causing headaches for thousands of borrowers in Romania, Croatia and Austria.

Meanwhile a new Polish Facebook group for class action against banks giving mortgages in Swiss francs got more than 2,500 likes.

“People are feeling cheated by huge financial institutions which were the first to earn profits from credits in Swiss francs. If somebody is giving loans which are so vulnerable to accidental and external factors, it is speculation which is forbidden by law,” said Witold Modzelewski, an economist, in an interview given over the weekend.

“That leads us to class actions against banks which we will see coming soon,” he added.

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