May 5, 2016 / 3:26 PM / 3 years ago

Exclusive: Poland considering giving up converting Swiss-franc loans to zlotys - sources

WARSAW (Reuters) - Poland’s government is considering giving up plans to force banks to convert Swiss franc mortgages to zlotys, in favor of laws allowing borrowers to recoup some of the costs of the loans or to walk away from them completely, sources told Reuters.

Various Swiss Franc and Polish Zloty notes lay on a table in this picture illustration in Warsaw, Poland January 18, 2016. REUTERS/Kacper Pempel

A team of aides to President Andrzej Duda is now preparing new proposals, aiming to announce a plan by the end of May. Two sources from that team told Reuters some form of forced conversion was still being considered, but other options had been proposed as well.

“We don’t need a conversion, as it would be unfair to zloty credit holders. The franc may fall in two or three years, as well, while zloty rates may go up, making the operation unprofitable,” Slawomir Horbaczewski, a member of the presidential team, told Reuters.

The eurosceptic Law and Justice party (PiS) won power last year partly because it promised to help thousands of Poles who took out loans in Swiss francs when the franc was cheaper against the zloty. Those borrowers had seen the cost of their loans surge as the value of the franc skyrocketed.

President Duda had proposed in January converting the loans to zlotys and making banks pay for the conversion. But Poland’s financial regulators, KNF, appear to have blocked that proposal by saying it would lead to exorbitant costs.

One solution might be to let people give up ownership of the mortgaged properties to the banks, along with the remaining loans, but pay rent to continue living in the homes, Horbaczewski said.

Banks may also be forced to return the cost of currency conversion they had charged borrowers, he said.

COSTLY IDEAS

The apparent change of tack within the government reflects public opinion polls, which show that more than half of Poles believe banks would transfer the cost of bailing out franc borrowers onto consumers.

Just over half of surveyed Poles said they were against a bailout for borrowers, a poll by CBOS showed in April, shortly after KNF published its estimates of how much a forced re-denomination into zlotys could cost.

KNF has estimated the conversion could cost local lenders more than four times their 2015 profits. Analysts and bankers say that converting the 148 billion zlotys ($38.12 billion) worth of franc mortgages could trigger bankruptcies among banks.

One of the challenges faced by PiS is to find a solution that would spread the cost of a re-denomination over time, instead of making banks pay for it up front.

“There is a need to find a way to re-denominate currency loans while ensuring the affect isn’t accumulated in one year, but, say, over 30 years - 1.5 billion zlotys per year,” said Jaroslaw Mielcarek, another member of the presidential team.

Most Polish banks are listed and must comply with international accounting standards. Those standards say that the cost of re-denominating mortgages has to be incurred immediately and cannot be spread over time.

To address this, PiS may try to lift franc mortgages from bank balance sheets and put them into a special-purpose vehicle that would issue bonds, one source said.

The Polish banking sector is 60 percent owned by foreign institutions such as Santander (SAN.MC), Commerzbank (CBKG.DE), Portuguese BCP (BCP.LS), BNP Paribas (BNPP.PA), and Raiffeisen (RBIV.VI). All their Polish units have portfolios of mortgages denominated in Swiss francs.

Reporting by Marcin Goclowski, Pawel Sobczak, Pawel Florkiewicz, and Anna Koper, editing by Larry King

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