Polish Mortgage Plan Shows Cracks After Raiffeisen Pulls Out

Raiffeisen Bank International AG’s decision to abandon work on settlements with Polish foreign-currency mortgage holders has exposed major differences in the plan to remove $32 billion in toxic loans.

The proposal for out-of-court deals, urged by the financial regulator KNF, won’t guarantee a systemic resolution of Swiss franc mortgages and could leave banks open to legal challenges, the Austrian lender said on Monday.

The move by Raiffeisen, which still has 9.5 billion zloty ($2.6 billion) of Swiss-franc home loans despite selling its Polish retail operations in 2018, could embolden other lenders to leave the talks, putting the entire plan in jeopardy, according to analysts.

Polish Mortgage Plan Shows Cracks After Raiffeisen Pulls Out

Led by PKO Bank Polski SA, the industry has been trying to thrash out a blueprint for out-of-court settlements that would end a decade of legal battles. Yet the one-off hit from converting loans into zloty could overwhelm some banks, while dragging the cases through Poland’s notoriously slow courts would allow to spread the pain over time.

“We are concerned that Raiffeisen is not the only bank that decided not to participate in the proposal,” Kamil Stolarski, an analyst at Santander Bank Polska SA, said in a note on Monday.

If lenders including General Electric Co. and Deutsche Bank AG, which also manage their mortgage portfolios despite leaving Poland, were to follow Raiffeisen, the total value of loans excluded from the settlements could reach 34.2 billion zloty, or 29% of the total, according to Bloomberg calculations.

That ratio could rise to 37% were Getin Noble Bank SA to join the holdouts.

Their Choices

The spokespersons for Polish units of Deutsche Bank and GE’s Bank BPH SA declined to comment on future decisions, with BPH confirming it’s working on the settlements along other lenders. The spokesperson for central bank, which made its involvement in the plan conditional on the participation of a sufficient number of banks, declined to comment.

In a statement on Monday, the KNF said banks are free to choose whether they want to participate in its plan, but they should take effective steps to eliminate legal risks that “have intensified significantly in recent time.”

“It’s up to bank managements to pick right strategies to deal with the problem,” KNF spokesman Jacek Barszczewski said in an email. They also “bear the responsibility for the consequences of their choices.”

The emerging disagreement would pit smaller lenders against PKO BP, the industry’s largest player. The state-owned bank is already testing potential settlements with clients and wants to end the legacy of its Swiss-franc mortgage lending this year. It also has enough capital to absorb the hit from loan conversions.

Court Battles

Years of court battles have forced Polish banks to boost provisions for legal costs related to Swiss loans forcing Commerzbank AG-owned mBank SA into a loss in the fourth quarter. Getin Noble said earlier this month that its capital adequacy ratio would fall below the minimum-required level due to additional provisioning.

Provisions could climb further if more of the 430,000 customers that still hold foreign-currency mortgages decide to sue. With the current number of lawsuits above 20,000, the settlements proposed by the KNF could help limit the cost for the industry to between 30 billion and 40 billion zloty.

As for individual lenders, Bank Millennium SA said on Monday it estimates the hit from settlements at as much as 5.1 billion zloty. Banco Santander SA’s unit sees a potential loss at about 3.5 billion zloty. That’s on top of 6.7 billion zloty expected by PKO and 5.4 billion zloty for MBank.

Shares in Millennium lost as much as 4.9% on Tuesday, while Santander Bank Polska SA was down 3%, falling for a third trading day.

©2021 Bloomberg L.P.

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