Here We Go …

Last week we wrote in the context of Swiss franc denominated loans to consumers in Europe:


Another problem is that governments may react to the situation by shifting the losses suffered by mortgage debtors back to the banks – this has e.g. already happened in Hungary. Not surprisingly, this policy has been hugely popular with the country’s population, but very costly for the banks. Since the necessary write-downs have already been taken, no further damage is to be expected from CHF mortgages outstanding in Hungary – the main danger for the banks is rather that the governments of other countries may consider adopting similar policies.”


It didn’t take long for a government to get in on the act. Poland’s government faces elections this year (both presidential and parliamentary), which is likely a major motivation for considering going down Hungary’s path with respect to CHF denominated consumer loans. It presumably hasn’t escaped the attention of Poland’s government that Viktor Orban’s Fidesz party has been faring rather well in Hungarian elections. Hence Polish prime minister Ewa Kopacz informed a throng of potential voters up to their eyeballs in CFH denominated debt that she would seek to move their losses to the banks.


5740890-marszalek-sejmu-ewa-kopacz-900-626Poland’s prime minister Ewa Kopacz wants to rescue Polish mortgage holders at the banks’ expense.

Photo credit: Sławomir Kamiski/Agencja Gazeta)


As Reuters informs us:


“Poland may help financially troubled holders of Swiss franc-denominated mortgages at the expense of the banks and will present specific proposals by the end of the week, Prime Minister Ewa Kopacz said on Monday.

Kopacz, who faces an election this year, did not spell out what form such help might take. She was speaking after hundreds of people staged protests in several Polish cities at the weekend demanding the government’s help in repaying Swiss franc-denominated mortgages following the currency’s sharp rise.

“If I have to choose between the interests of the banks and of the people who took out these loans, I will stand behind the people, but at the cost of the banks, not of the (state) budget,” she told public radio, without elaborating.

Home buyers across central and eastern Europe took out loans denominated in Swiss francs in the early 2000s, attracted by interest rates in the low single digits over paying double-digit rates on mortgages in their local currencies. They had already faced rising repayments as the franc strengthened with the onset of the global financial crisis in 2008, but repayments have soared in the last two weeks after the Swiss central bank removed its cap on the franc. The currency jumped some 20 percent against the Polish zloty.

Analysts do not expect Poland to follow the example of Hungary, where the government forced banks to convert FX loans and to compensate clients for past loan losses that the government and the courts said had been unfair. Poles hold about half a million mortgages denominated in Swiss francs and they are worth a total $36 billion, or eight percent of Poland’s gross domestic product.


(emphasis added)

Eight percent of GDP is a not inconsiderable amount, but interestingly, the NPL ratio on CHF mortgages in Poland stands so far at a very tame 3.1% – far below Poland’s total NPL ratio of 8%. By comparison, more than 17% of CHF denominated loans are already delinquent in Croatia. This suggests to us that many CHF borrowers in Poland may actually be in pretty decent financial shape, but the latest exchange rate move no doubt will make things difficult for some of them:


CHFPLN(Weekly)The CHF has soared vs. the zloty (PLN).


Small Problems Can Quickly Become Big Problems

Incidentally, Zerohedge reports that Austria’s Freedom Party has likewise discovered that Swiss franc mortgages are making for a politically expedient topic. We already mentioned that we are of two minds on this. On the one hand, debtors certainly bear personal responsibility for their borrowing decisions. On the other hand, banks were not exactly forthcoming in stressing the risks of CHF loans to their customers, many of whom did not possess the necessary financial expertise to properly assess it. The banks themselves probably underestimated the risk, but anecdotal evidence suggests that it was played down in the interest of pushing out as many loans as possible.

In light of the losses banks have suffered in Hungary, banks involved in CHF denominated lending in Poland have apparently become very careful with respect to handling this hot political potato:


“Banks have said they will cut the interest rate such loans carry following the Swiss National Bank’s decision to cut rates. Banks have also said they will not drown borrowers by imposing additional collateral costs.

The banks with large portfolios of Swiss franc-denominated mortgages are Getin Noble Bank, PKO BP, General Electric’s Polish unit BPH, Santander’s BZ WBK, Commerzbank’s, and BCP’s Millennium, as well as Raiffeisen International Bank Polish unit Raiffeisen Polbank.”


(emphasis added)

As the list of banks above shows, Austrian bank Raiffeisen International (RBI) has extended CHF loans in Poland as well. The bank needs another major trouble spot like a hole in the head right now, as it has just suffered major blows to its business in Ukraine and Russia.

JPMorgan recently suggested that it may become necessary for RBI to issue shares to shore up its capital, and that a potential capital impairment and the associated cash call would then percolate down the entire Raiffeisen cooperative, which is characterized by numerous cross-holdings.

The banks in the cooperative collectively hold assets amounting to €282 billion, or 87% of Austria’s GDP. The decision made by Poland’s government may well turn out to be the straw that breaks the camel’s back. This demonstrates how the interconnectedness of credit markets often results in superficially relatively small problems quickly snowballing into much bigger problems. Although RBI immediately let it be known that it currently doesn’t plan to raise capital, the stock market is clearly worried about the bank’s prospects:


RBIRBI’s share price has been in nosedive mode since it became clear it would have to take large write-downs in Russia and Ukraine. Trouble on the CHF loan front is the last thing it needs – click to enlarge.



If Poland’s government goes through with putting measures in place to shift the losses of CHF borrowers to the banks, it might give other governments in the Eastern European region ideas as well. Croatia and Serbia are high on the list of potential candidates in this context, as large volumes of CHF denominated loans are outstanding in these countries as well – and borrowers were already in far worse shape there than in Poland prior to the SNB’s suspension of the minimum exchange rate peg. The effects of the SNB’s decision continue to make waves.


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4 Responses to “Poland’s Government to Reset Swiss Franc Mortgages”

  • jimmyjames:

    Let the creditors bodies float ..

    Let the debtors bodies float ..

    Sometimes bodies need to float ..

  • Kreditanstalt:

    “On the other hand, banks were not exactly forthcoming in stressing the risks of CHF loans to their customers, many of whom did not possess the necessary financial expertise to properly assess it.”

    Sorry, I can’t buy that.

    The onus is on the one parting with the money to do due diligence. No one buys a second-hand car without knowing to check the brakes, kick the tires and take it for a test drive. The car dealer will almost certainly try to take advantage of the ignorant or ill-prepared buyer…the brakes on my car needed replacing just a few months after I bought it but I never thought of suing the dealer. I just didn’t do sufficient checking.

    Starting to blame the purveyor of the goods is opening a Pandora’s Box of possible legal entanglements and inviting even more regulatory interference by the state.

    The concept of “mis-selling” of mortgages was merely another example of the never-ending game on the part of the public of “responsibility avoidance”.” Victims/fools searching for a villain/miscreant on whom to place blame…the end result is that all of us get punished…

    • I agree it is a very slippery slope. In fact, it is clear that borrowers were responsible for reading the fine print before they took the money. The main reason why I even mentioned the “mis-selling” angle was that I was personally asked for advice by one such borrower (a family with very little understanding of financial markets), and became aware in the course of this that at the time most of these mortgages were extended, the risks seem to have been actively downplayed by some banks. Of course this doesn’t alter legal responsibility, which has to be based on what was contracted, and the contracts clearly state who bears the exchange rate risk.

  • mantrid:

    4 months ago there was an initiative by Polish banks to shift problems to the state: the state owned bank BGK would buy underwater houses (using pool of 5bln PLN originally planned to subside housing) and then rent them to troubled inhabitants. that would be obscure nationalization of underwater mortgages using BGK and losses would be passed to the state.

    the idea went largely underreported in the media. we’ll see if it comes back but it is unlikely as public opinion grows against gov help for CHF borrowers (there are already miners in the streets for weeks).

    but what is interesting is why banks were so concerned 4 months ago about that. why not earlier? what did they know then? did they expect CHF to surge? or maybe they were already troubled?

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