Poland Rebukes Banks as S&P Warns on Swiss-Mortgage Risks

(Bloomberg) -- Poland’s government played down the risk of a European court ruling that looms over its banking industry and made clear it wasn’t about to help lenders who doled out mortgages in foreign currencies.

Rating company S&P sounded more concerned, warning that some banks with exposure to such loans may suffer losses as a result of mounting lawsuits, forcing them to shore up depleted capital buffers and hedge currency positions. All of this could weaken lending along with the outlook for the country’s $586 billion economy, S&P said.

While investors have for months ditched Polish bank stocks due to mounting legal risks, Development Minister Jerzy Kwiecinski said on Wednesday that lenders shouldn’t expect the government to help them cope with potentially spiraling costs and reprimanded them for amassing $32 billion in non-zloty loans, mostly in Swiss francs. Prime Minister Mateusz Morawiecki said on Thursday the ruling won’t trigger an economic crisis as local banks have “very solid” capitals. The situation is under control, he told money.pl website.

“One of the key tenets of banking is that you should take credit in the currency of your revenue stream,” Kwiecinski said in an interview at an economic conference in Krynica, Poland. “This rule is good for clients and banks, so it would be hard to expect that the country would quickly offer some big support program for such lenders.”

Election Campaign

The foreign loan portfolio is putting the government in a tight spot ahead of a general election on Oct. 13. The cabinet seeks to bolster its credentials as the creator of Poland’s “economic miracle,” combining fast expansion, generous welfare spending and budget discipline, which a bank blowout could erode.

“The pre-election period makes it difficult to expect politicians to want to support banks instead of standing on the side of their clients,” Marcin Petrykowski, S&P’s director for central and eastern Europe, said in an interview in Krynica.

ING Bank Slaski SA analysts said on Thursday that even though politicians appear skeptical to help, banks may still be bolstered by the country’s financial market regulator and the central bank. The institutions could reduce capital requirements for banks and possibly provide cheap financing, according to the research note.

The European Union’s top court is due to decide this year about potentially abusive clauses in foreign-currency loan agreements.

Banks with hefty non-zloty loan portfolios have lost more than a quarter of their market value since June amid concerns that the ruling could trigger more litigation in Polish courts, forcing writedowns. The Polish Bank Association estimated the costs of a negative verdict at 60 billion zloty ($15.2 billion), or about four years of the industry’s total profit.

An index of Warsaw-listed banks advanced 0.7% on Thursday, curbing its third-quarter decline to 11%.

No Comment

Polish regulators have been silent on the issue, other than saying that they’re analyzing the situation. Even at the Krynica forum, the year’s biggest gathering of Polish executives and government officials, many refused to discuss the topic, signaling concern about potential negative developments ahead of the elections.

Pawel Borys, the head of government’s investment fund and co-author of the country’s planned pension reform, said this week that the Swiss loan issue posed the biggest danger for Poland’s economy. On Wednesday, he clarified that he sees a low risk of the negative scenario materializing as banks have built up their safety buffers for years.

Asked about Borys’s comments, Kwiecinski said: The verdict is a “much smaller risk for our economy than the external shocks that are visible on the horizon,” such as slowdown in global trade.

S&P is awaiting the tribunal’s ruling, as well as the reaction to the verdict by Polish courts, before deciding on the scale of the risks faced by the country’s banks.

“Certainly at this point, it isn’t clear which scenario will materialize,” Petrykowski said.

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