Polish banks remain mired in Swiss franc mortgage affair

DBRS Morningstar considers the impact of the European Court of Justice (ECJ) ruling over a dispute on a mortgage loan specified in Polish złotys (PLN) but indexed to the Swiss franc (CHF) increases the risk of provisions for Polish lenders from the conversion of the mortgages in foreign currency. This is due to DBRS anticipating a potential increase in litigation in Poland relating to these mortgages.

Key highlights from DBRS Morningstar’s commentary discussing the impact of the ECJ ruling include:

• The ECJ ruling is over a single case and is not binding. The final decision relies on the Polish courts, but we believe that any negative impact is likely be spread over time.
• Disputes could also extend to mortgages which have already been paid and other loans denominated in foreign currency. This may ultimately result in increasing bank provisions.
• As a result of this issue, banks may increase their capital buffers and this could result in lower lending growth weighing on the economic activity when growth is already decelerating.

“The number of legal claims for these mortgages could likely increase in Poland after the ECJ ruling. This may ultimately result in increasing bank provisions. However, given the uncertainty and the complexity of the problem, it is hard to estimate the final impact for banks“ said Nicola De Caro, Senior Vice President from the DBRS Morningstar Financial Institutions team.

“The ECJ ruling may pressure Polish authorities to find a “systemic solution” post the October 13th election to settle the issue. This pressure could also intensify in the case of a further significant depreciation of the Polish zloty. Previous political attempts to tackle the Swiss franc problem, including the proposal to introduce a mortgage levy, were ultimately not implemented” said Carlo Capuano, Vice President from the Sovereign Global team.

The decision might affect Polish subsidiaries of several international banking groups such as Banco Comercial Português, Commerzbank, Santander, BNP Paribas and ING. DBRS Morningstar will continue to monitor the litigation risk and any financial implications arising from this.

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