The Credit holidays Act came into force in Poland. The work on it was accompanied by a surprising in recent years political unanimity. The bill was supported by 453 deputies and 98 senators. It would seem that the matter is obvious: we should always feel sympathy for the debtor, because he is obliged to repay the loan, and creditor has money since he was able to borrow it.
Common perceptions, however, can be deceptive, and the political debate on Credit holidays Act, and earlier ideas of “freezing” WIBOR rates, focused so much on setting banks as scapegoats, which can be deprived of income, that only these images persisted. Moreover, ethical arguments would also be on the side of supporters of hitting banks. After all, we are taking from rich banks to give to poor debtors.
Even a brief look at how banks operate would dismiss this impression. Banks, as a rule, finance themselves with external capital – mainly liabilities to business entities and households which place deposits in them.
When banks are deprived of interest income, they lose funds to pay interest on savings invested in them – also savings deposited by poor and modest-living people, saving money for a rainy day or with the idea of having money for own contribution for their dream apartment in the future. The interest paid by banks cannot be separated from the interest received: banks are not willing to incur costs higher than their revenues.
But, as we have often heard from politicians from both the ruling party and the opposition, banks do not raise interest rates on deposits and savings accounts, but raise interest rates on loans. As a result, this year they achieved record profit (and at the same time, unfair one, because incurred with harm made to the debtors).
When it comes to the savings’ interest rates, this is clearly not true. Currently, one can easily find offers of savings accounts and deposits on the market with interest at the level of the NBP’s reference rate or higher.
But beyond that, we – ordinary citizens – are not only bank creditors. We are also their owners, which, however, the politicians pushing the idea of “credit holidays” do not mention. This is the case because it is much easier to introduce regulations hitting a certain sector when, in common belief, their cost will be borne by some unidentified rich, and not ordinary people.
Often, ownership is associated with control. In the case of the banking sector, it is true that, as a rule, banks in Poland are controlled either by the state or by foreign capital. However, in a joint-stock company where a large proportion of stockholders is dispersed, a 30% or even 20% share in equity is often sufficient to exercise control.
But the financial consequences of this control are borne by all stockholders, including those who hold several shares, just as all stockholders suffer consequences of the regulatory actions.
And who are the non-controlling owners of Polish banks? First of all, we should mention open pension funds which at the end of 2021 owned directly or indirectly (through PZU, holding Alior Bank’s and Pekao’s shares) bank’s shares worth over PLN 50 billion, which is more than twice as much as the value of shares held directly or indirectly by the State Treasury (slightly over PLN 24 billion).
These are not the assets of large and rich financial institutions, but of 15 million future retirees. Poles also own bank shares independently of pension funds, for example as a result of various privatization programs.
After all, they have them if they decided to invest in the Polish stock exchange as part of the third pension pillar, including through employee capital plans, the famous PPK, to which Prime Minister Mateusz Morawiecki himself encouraged when he proclaimed the slogan of “building Poles’ savings”. When he announced in April this year that he would “force the banking sector” to help debtors, he did not even mention that this meant that over two million PPK participants would pay for it.
This was not mentioned by the opposition, which, from the very beginning, eagerly accused the banks of alleged greed, instead of pointing to the interests of future pensioners who became bank owners.
Finally, we also need to look at the borrowers themselves, we only learn from the media and politicians that their installments have recently increased by at least several dozen percent. We do not hear, however, that earlier many of them had their installments decreased by several dozen percent. Not all mortgage loans were taken out at a time when the NBP reference rate fell to 0.1% (it is only one sixth of all PLN mortgage loans).
For example, an installment of a 25-year loan with a margin of 2 pp. taken in 2012 was in the second quarter of 2021 approx. 35% lower than at the beginning, now it returned more or less to the original level – in nominal terms, because it is still much lower in real terms, as the price level has increased by approx. 30% since then. Real estate prices were also lower then, which meant that the average loan was lower – by approx. 40% compared to 2021.
After all, over the last 10 years, the average wage has increased by around 60%. Therefore, even now, for borrowers from that period as a group, the installment should not be a greater burden to the household’s budget than at the time of taking out the loan.
First and foremost, one has to remember that in order to get a high loan (and such loan is usually taken to buy real estate), one must have high credit rating. And this is what’s happening: in the six lowest deciles of income groups a few percent of households have mortgage loans, and in the highest group (among the 10% wealthiest) – over 30%.
So, we can see that, contrary to the common perception that the public has been fed in recent months by politicians from both the ruling party and the opposition, widespread support programs for borrowers are not a redistribution from rich to poor. There are many indications that quite the opposite happens: mainly the poor will pay for the “credit holidays” that are about to enter into force, and mainly the rich will benefit from them.
If the state is to create a social safety net, it should direct its support to those people who actually are in a difficult financial situation, and not simply to anyone who, for example, took out a mortgage, regardless of its conditions and whether is in a difficult position after the recent interest rate hikes.
It is downright naive to believe, for example, a thesis by Minister Waldemar Buda that “only those who really feel that the installment exceeds their capabilities will postpone the repayment of these installments by the so-called credit holidays”.
A simple calculation, which can be read on almost every blog about personal finance, shows that even if someone can afford an installment, will still benefit from the “credit vacation”. So why should one give up on them?