CHF/PLN surge threatens Polish loan-takers and banks

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After the Swiss National Bank announced Thursday it was not going to defend its exchange rate against the euro anymore, the CHF/PLN exchange rate soared to a record-high of over 5.0 before falling to approximately 4.1. On Wednesday, it stood at 3.57. The news hit Polish debtors with mortgage loans denominated in the Swiss franc. Some 600,000 Poles have such loans.

The amount of the outstanding frank-denominated mortgages amount to some 7.7 percent of Poland’s CHF. According to estimates by Citi Group, with the EUR/CHF at 1.0, Polish household’s cost of servicing their debt would increase by approximately 17 percent, which corresponds to less than 0.15 percent of GDP.

“This means that actual drag from a stronger franc on Polish consumption should be limited and will be more than offset by the positive impact of lower fuel prices (~0.6-1.0 percent of GDP),” said Poitr Kalisz from Citi Group.

The increase in non-performing loans of Polish banks may also increase, albeit slightly. Currently the level of non-performing mortgage loans is at 3 percent.

The sudden increase and its impact on Polish debtors may however cause some political tension. “We see a risk that the opposition parties may call for some systemic solution to the FX loans problem, in some way similar to the one adopted by Hungary,” Kalisz added.

The shares of Polish banks recorded a strong decline on Thursday, with the WIG BANKI index down by 4.71 percent. In stress tests conducted by the Financial Supervision Authority back in October of 2014, one bank was facing risk of bankruptcy at the CHF/PLN exchange rate at the level of 4.2.

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