European Markets

Polish financial sector more stable but FX loans still a risk - central bank

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WARSAW, Dec 7 (Reuters) - Swiss-franc mortgages remain a risk factor for Polish banks, but overall the stability of the sector has improved, the central bank said in a report on Tuesday.

Thousands of Poles took out mortgages in Swiss francs more than a decade ago to take advantage of low Swiss interest rates, only to face higher costs when the value of the zloty slumped.

"The legal risk of FX mortgages remains the main risk to domestic financial stability, but the probability of materialization of court decisions in FX mortgage cases, which can be most costly for banks, has diminished," the central bank said in its annual financial stability report.

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In September, Poland's Supreme Court failed to resolve a standoff over judicial appointments that was blocking proceedings in a long-running case on foreign currency loan disputes.

The central bank said risks related to the COVID-19 pandemic and banks' low profitability had also decreased.

"The consequences of the pandemic have proved to be less severe for the economy and the banking sector than initially anticipated," it said.

However, it said that a rapid increase in lending in the real-estate market needed to be monitored closely.

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Reporting by Pawel Florkiewicz and Alan Charlish; Editing by Kirsten Donovan

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