Poland: Moving Away from the Forced Conversion of Foreign Currency Loans Is a Good Step Forward

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The cancellation of compulsory currency conversion of loans taken in Swiss francs is without a doubt the right decision. Contrary to earlier announcements, the new bill recently presented by President Andrzej Duda does not provide such an obligation. Moreover, during a press conference, Polish authorities introduced a plan of legalizing some supervisory activities designed to create stronger incentives for banks in order to allow them to finally change the currency of their credit, in a way of individual negotiations with borrowers. Therefore, this kind of arrangement does not expose banks to excessive losses and thus does not constitute a threat to economic growth in Poland, which makes it an adequate proposition.

However, the electoral promises by the President and the currently ruling Law and Justice party while they were leading theirs campaigns may cause undesired situation in which debtors decide to wait with currency conversing, expecting the government to establish more radical adjustments which, in turn, may be more detrimental to the economy.

Taking a loan in a foreign currency puts both borrowers and banks at risk. At the time of signing the contract, both providers and takers neglected the possible weakening of Polish zloty, believing in its further strengthening. Besides the fact that one can easily learn about it from various sources, the majority of borrowers knew that such a danger exists. What is more, in the years 2007-2008 when most of the credits were granted, the banking supervision recommended to limit the availability of those loans, what brought a lively debate in the media whether it is a good idea or not. Nevertheless, it clearly did not reflect on the clients decisions. In addition, actions offered by banking supervision were criticized not only by consumers willing to take the risk, but also by politicians – mostly from the Law and Justice party. At first, as holders who took a loan in foreign currency were gaining more than those who did not, there were no protests at all. The deeper discussion about the necessity of currency conversion started with unwanted exchange rate fluctuations.

Putting all the responsibility on banks would be unfair and harmful to the economy. On the other hand, equating the situation of borrowers counting on lower installments (thus the people who have dragged more risky foreign currency loans) with the situation of those who chose more expensive but safer loans in Polish zloty, would be unfair to the latter ones. Shifting all the cost on Polish banking sector, in turn, would be dangerous for its stability and consequently for the economy as a whole. Without a healthy, well-capitalized banking sector, enterprises would have difficulties in obtaining credits and self development, which translates into a problem for the state’s economy. Numerous cases from around the world (Spain, Italy or Slovenia, for example), show how costly for the country and its citizens banking crises can be. Intentionally leading a substantial part of the banking sector to the edge of bankruptcy would be an irresponsible act.

Moreover, as the President of the Polish National Bank Adam Glapiński rightly pointed out, an unilateral change of previous agreement provided by legislature could launch costly processes against Poland initiated by foreign investors. As a result, the loss of foreign investors could charge the Polish taxpayers with obligation to pay the compensation.

What seems to be a good direction on a route to solving the Swiss francs loans problem is introducing an individualized negotiations between banks and borrowers. The situation of different holders varies a lot. Thus it is difficult to compare the position of a wealthy citizen who buys investments in several apartments with that of a person who – not having the possibility to afford a loan in Polish currency – with the support of financial intermediaries bending the rules took the loan in Swiss francs, which now he/she cannot pay off. As a matter of fact, it is in the state’s and taxpayers’ interest to reduce the risks associated with foreign currency loans.

It is the state and the taxpayers who are the ultimate guarantors of the banking system, and so they have the right to expect that it did not take an excessive risk. Further raising the level of risk and increasing capital requirements for banks with particularly large portfolios of foreign currency loans (as it motivates them to gradually conversion of problematic loans) is a right thing to do. Actions suggested so far by the banks were not sufficiently far-reaching. Those supervisory activities combined with the systematic decrease in the volume of loans granted in Swiss francs (the already taken ones are being gradually repaid and no more of them can be given) get the economy closer to remove the threats caused by them.

The best strategy for the government to accelerate this process would be to conduct a responsible macro-economic policy (mainly: reducing the public sector deficit). Unfortunately, the present government is going just in the opposite direction which contributes to a faster growth of the public dept. The project regarding the return of spreads charged by banks before 2011 does not raise any serious doubts, the unilateral banks determination of the exchange rate undermined the equality of the parties and was often abused by those institutions. Another issue is whether this case should be resolved on the grounds of applicable legal rules, or should rather be left to the court jurisdiction. Due to the scale of the problem and the number of “harmed” people, the statutory route seems to be a more effective solution.

Promises and ideas previously made by the Law and Justice party and the President himself may be now perceived as a threat to his latest proposals. Both Andrzej Duda (first as a candidate and later as a president) and representatives of the ruling party were repeating slogans about the currency translation of loans at the rate of borrowing date. Accordingly, borrowers may not be interested in negotiations with banks, waiting for another (more radical and favorable for them) bill, harmful to the economy instead.

Are you interested in this topic? Read more: Polish ‘Swiss Franc Loans’ Problem

Translated by Aleksandra Świeczyńska

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Rafal Trzeciakowski