June 3, 2016 / 6:25 AM / 3 years ago

Polish experts mull partial conversion of FX mortage loans-daily

WARSAW, June 3 (Reuters) - A council of presidential experts may propose partial redenomination of Swiss franc-denominated mortgages, with banks’ covering losses through a share sale and repurchase agreement with the central bank, Gazeta Wyborcza daily reported on Friday.

The council is expected to present a proposal this month, and the daily, which did not cite its source, said it was unclear if this version had reached the final draft stage.

Once it is finalised and presented, President Andrzej Duda will decide whether to adopt the recommendation.

More than half a million Poles took FX loans to benefit from low Swiss interest rates, but now face much bigger repayments because the franc has doubled its value over the last few years.

In January, Duda proposed full conversion of FX loans at a “fair” rate, close to the rate these credits were taken at, but financial sector regulator KNF has estimated that could cost Polish lenders more than four times their 2015 profits.

Analysts and bankers say that converting 148 billion zlotys ($37.68 billion) worth of franc mortgages could result in some banks going bust.

According to Gazeta Wyborcza the council’s new idea may allow mortgage holders to convert, at banks’ expense, the remaining part of the debt into zlotys at the rate they were taken, but home-owners would have to return any profits they earned thanks to low Swiss rates.

To strengthen their capital, banks would issue shares to central bank or Bank Gospodarstwa Krajowego, a state-run special purpose bank, and buy them back in 20-30 years time.

These shares, sold to the state at a 50 percent discount to the market price would carry no voting or dividend rights.

Last year the aggregated net profit of Polish banks, which are 60 percent owned by foreign institutions such as UniCredit , Santander. and Commerzbank, fell by almost 18 percent to 11.5 billion zlotys.

President Duda, an ally of the ruling eurosceptic conservative Law and Justice (PiS) party, had promised in the last year election campaign to offer a solution to the problem.

PiS wants to reduce foreign-ownership in banks and accuses the sector of generating huge profits at ordinary people’s expense. It introduced a bank tax supposed to bring 4.4 billion zlotys annually to finance its broad social spending agenda. ($1 = 3.9282 zlotys) (Reporting by Marcin Goclowski; Editing by Simon Cameron-Moore)

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