Polish FX mortgage proposals will not hit lending, Moody's predicts

WARSAW, June 12 (Reuters) - Poland’s latest attempt to get banks to restructure their problematic foreign-currency mortgage portfolios could mean they have to set aside an additional $3.2 billion but would not restrict lending, ratings agency Moody’s predicted on Monday.

The Financial Stability Committee (KSF) recommended a new rule on June 2 which raises the risk weight on Polish banks’ exposure to foreign exchange mortgages used for calculating their capital adequacy to 150 percent from 100 percent.

About half a million Poles took out Swiss franc loans before the global financial crisis to benefit from a strong zloty and low interest rates in Switzerland and Polish foreign currency mortgages, mainly in Swiss francs, total 153 billion zlotys ($41 billion), or about 8 percent of gross domestic product (GDP).

“We estimate that the financial effect of the risk-weight increase on the entire banking sector will be up to 12 billion zlotys,” Moody’s said, adding that the impact would be spread over time and would not curtail their lending.

The KSF recommendation, accompanied by eight others, is likely to be introduced and will raise the cost to the banks of holding home loans denominated in foreign currencies. The Polish bank stock index is down by 1.6 percent since then.

The loans became a hot political issue before the 2015 elections following a spike in the value of the Swiss franc in early 2015, which increased monthly instalments and the value of the FX mortgages for thousands of Polish families.

“These measures replace the previously contemplated mandatory conversion of banks’ foreign-currency mortgages into Polish zloty, which ... had the potential to severely affect some banks’ capitalisation,” it added.

Before the 2015 elections, politicians in the ruling Law and Justice (PiS) party had called for a conversion of FX mortgages into zlotys at the exchange rates they were taken out at and that banks should bear the cost.

PiS backed down, however, after estimates from the financial regulator and the central bank showed such a move would likely destabilise the whole financial system.

Because of the rise in value of the Swiss franc over the last few years, many Poles still face an outstanding debt larger than the value of the real estate it was taken out to finance, despite years of paying back instalments on the loan.

In February, PiS head Jaroslaw Kaczynski said that Polish borrowers seeking compensation should not expect the government to impose a settlement on the banks, but take their individual claims to court instead.

The rise in mortgage servicing costs on Swiss franc mortgages expressed in zlotys has been softened by a further fall in interest rates in Switzerland in recent years. ($1 = 3.7307 zlotys) (Editing by Alexander Smith)