Top Polish Bank Aims to End Swiss Franc Mortgage Saga in 2021

Poland’s state-controlled PKO Bank Polski SA wants to end the legacy of its Swiss-franc mortgage lending this year, piling pressure on the rest of the industry to follow suit.

The country’s biggest bank will seek shareholders approval to offer conversion of foreign currency loans to all borrowers once the pilot program it’s running with selected clients is over, Chief Executive Officer Zbigniew Jagiello said on Wednesday. That should allow the lender to settle all the cases by the end of the year, he added.

Finding the resolution would allow PKO to boost its return on equity -- a key gauge of profitability -- to around 10% and accelerate loan sales, Jagiello told reporters after the bank published better-than-expected fourth-quarter earnings.

Top Polish Bank Aims to End Swiss Franc Mortgage Saga in 2021

PKO has been at the forefront of attempts to defuse the industry’s $31 billion in foreign currency loans that left many borrowers with ballooning debts after the zloty slumped against the Swiss franc. Poland’s financial regulator late last year proposed the industry offered out-of-court settlements to clients amid a wave of lawsuits.

“Once PKO settles with most clients, it would become an outlier in the Polish banking industry, with chances for dividend and stronger profits,” said Lukasz Janczak, an analyst at Ipopema Securities SA. “It’s also clear that PKO can afford a one-time loss on such a portfolio.”

PKO is closer to finding a fix than some of its peers including Bank Millennium SA and MBank SA, who have only started analyzing whether to seek settlements, given their potentially bigger impact on earnings.

PKO estimates it would suffer a hit of as much as 6.7 billion zloty ($1.8 billion) from a conversion of all foreign currency mortgages into zloty, but it has sufficient capital to absorb such losses.

Industry Response

The lender has booked a total of 1.4 billion zloty in provisions related to legal risks of Swiss franc loans, joining MBank, Bank Millennium among others in setting aside more money to cover growing costs of lawsuits.

Getin Noble Bank SA said earlier this week that its capital adequacy ratio would fall below the regulatory-mandated level after it boosted its foreign-currency loan provisioning.

While Jagiello declined to say whether he’ll wait for other lenders to join the settlement push, he stressed that the industry differs much in terms of profitability. That could create a challenge for an industry-wide response, according to Janczak.

“It’s unclear whether PKO’s plan will be supported by regulators if the rest of the banks won’t join broad settlements,” he said.

©2021 Bloomberg L.P.

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