(Bloomberg) --
Investors knew a European Union ruling was coming, but they didn’t know when. Now that there’s a date, the risks to the zloty have become all too real.
The European Court of Justice on Friday said it would decide on Oct. 3 if Polish banks maintained abusive terms in foreign-currency loan agreements. The zloty dropped the most since May 2018 against the euro that day, bringing the week’s decline 1.2%, the worst in more than two years. The currency extended the slide on Monday, leading losses among emerging-market peers.
“Investors worry that the ruling may be negative for Polish banks, which may translate into lending curbs and slow down private consumption - the engine behind Polish economic growth,” said Rabobank strategist Piotr Matys, who warned earlier this month the zloty may fall.
The currency slid for a sixth day on Monday, dropping 0.5% to 4.3958 per euro, its weakest level since August. Meanwhile, the dollar-zloty pair breached 4 for the first time since May 2017.
A decision in favor of borrowers could cost the industry about 60 billion zloty ($16 billion), the equivalent of four years of the industry’s income, according to the Polish Banking Association. The country’s lenders have $32 billion in non-zloty loans, mostly mortgages in Swiss francs.
If that happens, there probably “won’t be enough demand for zloty, which may mean the 4.40 per euro level will be breached,” Matys said.
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