Polish Banks Warn of $16 Billion Risk From EU Ruling, Puls Says

(Bloomberg) -- Poland’s bank association has asked the government and industry regulators for help in case the European Union’s top court rules against the country’s lenders over foreign-currency mortgages, according to Puls Biznesu newspaper.

The lobby’s initial estimate shows banks could face “huge” costs of at least 60 billion zloty ($16 billion), or about four years of industry profits, in a scenario of an unfavorable ruling, according to the newspaper. The Luxembourg-based court’s ruling is expected this month or in September.

The association wants the government and regulators gathered in the so-called Financial Stability Committee to give their opinions regarding the looming ruling.

The issue of how to deal with Poland’s $32 billion of non-zloty loans, mostly denominated in Swiss francs, has repeatedly battered the country’s bank stocks. While political appetite for hobbling lenders with the costs of converting the loans into zloty has declined, concern over the EU court ruling could revive market jitters, especially after a non-binding opinion published in May sided with bank clients.

Broker Ipopema Securities SA said that the EU court verdict will affect only FX-indexed mortgages, which make up about 55% of total foreign-currency loans, potentially reducing the industry’s exposure to a negative ruling.

‘Overestimated’ Costs

The lobby’s “potential costs look overestimated at first look in our view, nevertheless the cost for the banking sector would be substantial anyway,” Ipopema analyst Lukasz Janczak said in a research note. “At this stage, however, it is hard to gauge the probability of a negative solution.”

The WIGBank index of Polish lenders gained 0.2% as of 10:20 a.m. in Warsaw. It has advanced 6.5% this year, beating the country’s benchmark WIG20 gauge.

Lenders including PKO Bank Polski SA and Pekao SA are “less likely to be affected” by the verdict as they offered Swiss franc-denominated mortgages instead of indexed loans, according to Santander Bank Polska SA analyst Kamil Stolarski.

To contact the reporter on this story: Piotr Bujnicki in Warsaw at pbujnicki@bloomberg.net

To contact the editors responsible for this story: Scott Rose at rrose10@bloomberg.net, Wojciech Moskwa, Andras Gergely

©2019 Bloomberg L.P.