Swiss-Loan Talks Stall as Polish Banks Fret Over Legal Risks
(Bloomberg) -- Talks in Poland for settling $32 billion in foreign-currency mortgages have practically stalled because of lenders’ concern over legal risks, according to five bankers with direct knowledge of the situation.
The negotiations -- which include the Polish units of Commerzbank AG, Banco Santander SA and BNP Paribas SA -- have been difficult with lenders failing to agree on even basic issues, such as the cost of the planned out-of-court settlements, said the people, who asked not to be named because they’re not authorized to speak on the subject publicly.
Lenders also have questions about the legal standing of the proposed settlements, according to the people. The zloty weakened to a 2021 low against the euro and Warsaw-listed bank stocks dropped the most in three months on Wednesday amid concerns about the lack of progress in the negotiations.
The limbo is likely to persist. The Supreme Court decided on Wednesday to postpone until April 13 a meeting that was expected to clarify how lower courts should rule in disputes over mostly Swiss franc mortgages. The sitting was initially scheduled for next Thursday.
The authorities have encouraged “voluntary” out-of-court deals with clients, which would convert loans into zloty from the date the mortgages were taken. The regulator touted this as the best option for banks, which may cost 34.5 billion zloty ($8.9 billion) or more. That’s four times last year’s industry profit, but a fraction of the bill if courts end up annulling all franc loans, according to official estimates.
Wave of Lawsuits
If the talks fall apart, it would expose banks to more losses as courts increasingly side with mortgage holders. The Supreme Court opinion is likely to strengthen this trend, which could trigger another wave of lawsuits.
Only state-controlled PKO Bank Polski SA appears determined to forge ahead and offer settlements, even if others don’t follow, the people said. Another group with relatively small non-zloty loan portfolios, which includes ING Bank Slaski SA, Bank Pekao SA and BOS Bank SA, are described as sitting on the fence.
Lenders with hefty piles of foreign-currency loans, such as MBank SA, Bank Millennium SA and BNP Paribas Bank Polski SA, are skeptical, while Raiffeisen Bank International AG conspicuously quit the talks last month. Some are pushing for assurances from the financial regulator and the competition watchdog to ensure that the settlements can’t be later questioned in courts, the people said.
Fitch Ratings put credit ratings of MBank and Millennium on watch negative due to increased risks related to legacy exposures of their non-zloty mortgages.
Getin Noble Bank SA, the lender with highest exposure to non-zloty loans compared with its total assets, hasn’t even joined the negotiations, according to the people. All of the lenders involved declined to comment on the negotiations.
PKO, Poland’s largest bank, and its team of lawyers have taken the lead in trying to iron out details of the plan that would be palatable to a majority, the people said. A survey of its clients has shown 70% would be open to some form of settlement.
The industry also wants the central bank to provide currency reserves for the operation, with some seeking to soften the criteria needed to get assistance, the people said. At the same time, PKO signaled it may get the needed Swiss francs to convert the loans into zloty without the central bank’s help, according to one person.
A deal backed by most lenders isn’t currently likely, the people said, meaning that banks may miss out on central bank help and face years of escalating legal fees. This situation may change once the Supreme Court eventually gives its ruling, but the road ahead is going to be long and bumpy.
Banks would still need to survey mortgage holders to gauge how many are willing to convert their loans, assess the impact on their capital and compare it with the cost of continuing court battles. Only then and with shareholders approval, the path for settlements could open.
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