Polish parliament considers bill to help Swiss franc borrowers

WARSAW, Aug 2 (Reuters) - Polish President Andrzej Duda has submitted a draft bill to help troubled foreign currency borrowers that would cost lenders up to about 3.2 billion zlotys ($890 million) per year.

The financial regulator KNF and the central bank backed the draft legislation published by parliament on Wednesday, saying it would help borrowers but at the same time preserve the stability of the financial system.

Bank stocks fell by nearly 2 percent on Wednesday because the potential cost exceeded some market expectations.

The draft marks another effort by Duda to make good on his election promise to help Swiss franc borrowers.

The bill envisages the creation of a new fund that would be financed by payments from banks with portfolios of foreign currency mortgages, mostly denominated in Swiss francs.

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. However, a subsequent surge in the Swiss franc left many borrowers stuck with real estate worth less than the value of the loan.

All FX mortgages were worth 150 billion zlotys at the end of May and the draft bill would set a quarterly payment of up to 0.5 percent of the value of each portfolio.

This would result in annual payments worth up to 3.2 billion at current exchange rates, about 0.3 percent of the value of total bank loans in Poland.

“The current draft bill is a sensible compromise between achieving the social goal of helping borrowers and avoiding a risk to the stability of the banking sector,” financial regulator KNF said in a statement, echoing a separate statement from the central bank.

Banks with major portfolios of Swiss franc loans include state-controlled PKO BP, Banco Santander’s unit BZ WBK, Commerzbank unit mBank, Millennium bcp unit Bank Millennium and Getin Noble Bank.

Before the 2015 elections, politicians in the ruling Law and Justice (PiS) party had called for a conversion of the FX mortgages into zlotys at historical exchange rates at the expense of banks.

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.

Instead, a Polish financial stability body recommended in June higher risk weights on banks’ exposure to foreign exchange mortgages, a policy designed to encourage banks to offer better terms for voluntary FX mortgage conversion into zlotys.

The Swiss franc has weakened against the zloty by about 10 percent so far this year, both reducing instalments paid by borrowers and reducing the political pressure for any forced conversion. ($1 = 3.5952 zlotys) (Reporting by Marcin Goettig; Editing by Keith Weir)