New Legal Risk Looms for Polish Banks After Swiss-Loan Debacle

(Bloomberg) -- A fresh legal challenge awaits Polish banks just as they emerge from years of controversy around their Swiss franc mortgages.

A lawsuit filed against the country’s biggest lender PKO Bank Polski SA this week seeks to strike down the Wibor rate which serves as the benchmark for retail loans. It argues the reference rate doesn’t reflect the real cost of funding for banks and gives them an unfair advantage, according to law firm Frejowski Wspolnicy. 

It’s far from clear whether such suits will mushroom and impact the industry, as occurred with more than 60,000 cases over alleged abusive clauses in foreign-currency loans. But the legal action taps into an already organized base of disgruntled creditors, who are currently facing fast-rising interest payments as Poland’s central bank exits record-low borrowing costs to tackle spiraling inflation.

“We want to ask the court the fundamental question about the use of Wibor in retail loans,” lawyer Sebastian Frejowski, who represents the plaintiff in the landmark case, told Bloomberg by phone. “We realize that if the Wibor is rejected, it will be an atomic bomb for financial industry.”

Since the start of 2021, the WIG-Bank index of Warsaw-listed lenders has jumped 88%, seven times more than the blue-chip WIG20 gauge. The advance has been fueled by rising rates and a push to resolve foreign-currency mortgage disputes with out-of-court settlements after banks amassed a total of 19 billion zloty ($4.8 billion) in provisions for legal risks on the mostly franc-denominated loans.

Most variable-rate mortgages in Poland amount to a set margin over the Wibor, which is supposed to represent the cost at which banks borrow from each other. Central bank data, however, show that interbank lending has dried up, especially on transactions longer than overnight deposits, posing challenges to the calculation of the three- and six-month Wibor rates typically used in mortgage contracts.

The lawsuit argues that banks are able to finance themselves largely with cheaper deposits, while the daily Wibor fixing may be artificially inflated in anticipation of future increases in official borrowing costs. Since the tightening cycle started in October, Poland’s key two-week reference rate has increased 2.65 percentage points, while the three-month Wibor jumped by 3.2 points.

Polish banks granted a record amount of loans last year and the surge in mortgage payments in past months has caught many borrowers off guard. Several lenders, including Bank Millennium SA and Santander Bank Polska SA, have said in recent weeks that they don’t see any legal grounds to stop relying on the Wibor.

PKO declined to comment on the lawsuit. GPW Benchmark, the Warsaw Stock Exchange SA unit which oversees the setting of reference rates, said the way it calculates Wibor is fully in line with European Union regulations.

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