Law Firm Bets Covid Won’t Slow Flood of Polish FX-Loan Cases

(Bloomberg) -- The coronavirus pandemic and subsequent lockdown isn’t deterring Poland’s foreign-currency borrowers from continuing to file a flood of lawsuits against their banks, according to one of the biggest law firms specializing in such cases.

Despite a slowdown in court activity during the outbreak, the number of suits Votum SA expects to file on behalf of clients this quarter will exceed the 1,540 it had in the first three months, the law firm said in an emailed reply to questions from Bloomberg.

Votum, which has a market capitalization of 143 million zloty ($36 million) and whose shares dropped 17% this year, is keeping its full-year guidance for 8,000 new lawsuits. It expects the zloty’s plunge against the Swiss franc to increase the number of mortgage holders angry enough to sue their banks.

Wrangling over the equivalent of $31 billion in mostly franc-denominated mortgages has over the past decade sent repeated shocks across Polish markets, stoking sell-offs in the zloty as well as bank stocks.

Last October’s ruling by the European Union’s top court, which many borrowers saw as vindication of their struggles against the country’s financial giants, triggered an unprecedented wave of fresh cases to the courts and helped drive up Votum’s shares.

Votum is now betting that a motion picture it’s co-producing about the plight of foreign-currency borrowers, known in Poland as Frankowicze, will keep interest in lawsuits high. The film, whose title translates into English as “Banksters,” is scheduled for release in October.

“I’m sure the movie will start a country-wide discussion,” Votum Chief Executive Officer Bartlomiej Krupa said at an earnings conference call on Wednesday. “We hope that the effect may be similar to the EU ruling.”

Bank Provisions

Votum has seen about 80% of its hearings postponed since the lockdown began in mid-March, including 295 cases in May alone.

Such data, if confirmed by other law firms, could be good news for second-quarter bank provisioning, since some lenders base their write-offs on the number of negative rulings. But as courts resume activities next month, as currently envisaged, provision risks will again reappear.

“If courts return to business as usual, the second half of the year may be a challenge,” Ipopema Securities SA’s analyst Lukasz Janczak said.

Lenders set aside for FX-loans a whooping 1.6 billion zloty in the fourth quarter -- roughly a 10th of the industry’s annual profit -- and another 165 million zloty in the first three months of 2020.

It’s a Guessing Game for Polish Banks Counting FX-Loan Costs

Votum said it already sees an increase in scheduled court hearings and expects a “very busy” third quarter. The zloty has weakened more than 5% against the Swiss franc this year and set a five-year low in March.

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