Polish banks run the risk of rising mortgage costs due to impending court ruling
Polish banks could face another blow linked to their Swiss franc mortgage exposure if a ruling by the country’s Supreme Court goes against them.
The court is due to rule on September 2 on whether banks can charge customers for the use of their capital during the period when the now canceled mortgages were active. The Polish financial regulator has calculated that if the banks cannot charge for this, they would incur costs of 101.5 billion zlotys, compared to an estimated cost of 34.5 billion zlotys under an alternative settlement proposal. The central bank has identified the associated legal risk as a major threat to financial stability.
Many Polish borrowers took out mortgages denominated in Swiss francs in the 2000s to take advantage of the low interest rates in Switzerland. When the Swiss franc appreciated strongly in early 2015, mortgage holders ended up with higher repayments, and many are now involved in litigation with their banks.
Several foreign lenders – such as mBank SA, Bank Millennium SA, Santander Bank Polska SA and BNP Paribas Bank Polska SA – have significant mortgage exposure to Swiss francs. These loans represent 13.9% of Bank Millennium’s total portfolio and 9.2% of that of mBank. Millennium has provisions that cover 14.9% of its portfolio, while mBank covers 13.5%.
Potential additional costs
Supreme Court ruling, if not favorable to banks, may trigger significant levels of additional provisions to cover legal risk, says Bettina Orlopp, chief financial officer of Commerzbank AG, which owns Warsaw-based mBank . Speaking on in a call for results on August 4, Orlopp said that Commerzbank currently has an adequate level of provisioning.
mBank provided almost 315 million zlotys of additional provisions in the first half of the year. Bank Millennium, Santander Bank Polska and BNP Paribas Bank Polska have set aside respectively 1 billion zlotys, 713 million zlotys and an additional 259 million zlotys. Bank Millennium is owned by Banco Comercial Português SA, while Santander Bank Polska and BNP Paribas Bank Polska are owned by the Spanish company Banco Santander SA and based in France BNP Paribas SA.
The decision could have a significant impact on banks, and related provisions will continue to apply. will strongly affect their profits in the near future, Michał Sobolewski, Dom Maklerski BOŚ analyst, told S&P Global Market Intelligence.
A decision by the European Court of Justice in 2019 allowed borrowers to ask Polish courts to convert their mortgages to Polish zlotys. Foreign banks and Poland’s largest bank, PKO Bank Polski SA, faced thousands of individual lawsuits at the end of June. However, lower court rulings differ on whether banks can charge for the use of capital during the active term of the mortgages.
The September 2 decision is expected to clarify this and will be key in helping banks and their customers decide whether to friendly settlements, such as offers by the Polish Financial Supervisory Authority. However, the decision has already been delayed and could be again amid a dispute between Poland and the EU over the procedure for appointing judges, local newspaper Rzeczpospolita reported.
Provisions for legal risks
Bank Millennium said that if all of its Swiss franc mortgage contracts currently in the process of being declared invalid without compensation for principal, the pre-tax cost to the lender could reach 3 billion zlotys. The bank has provisions for legal risk amounting to PLN 1.9 billion, an exchange buffer of PLN 1.8 billion and a similar surplus in other parts of the capital pile, a spokesperson said. bank’s word to S&P Global Market Intelligence.
It is “an important buffer to absorb possible losses in a realistic scenario,” the spokesperson said.
In their second quarter earnings conference calls with analysts, Banco Santander and Raiffeisen Bank International AG both noted the uncertainty surrounding the Supreme Court’s ruling. But Santander said the issue is not expected to have a significant impact on the group, and RBI has said it will not pose a risk to RBI’s dividend plans. under the current provisioning model.
Bank Pekao SA and ING Groep NV unite ING Bank Slaski SA, both of which saw a large influx of Swiss franc mortgage lawsuits but have relatively low exposures in this segment, did not make any new provisions this year. Neither PKO Bank, who set aside a fund of 6.7 billion zlotys in 2020.
Austrian company RBI, which finalized the sale of its Polish unit in 2018 but still has some mortgage exposure to Swiss francs, provisioned 77 million euros in the second quarter for potential related claims, bringing the total to 195 million euros. ‘euros. He expects around 300 new court cases per month in 2021, with the total number of pending cases standing at 5,455 as of June 30.
ING Bank Śląski and PKO Bank announced their participation in the Financial supervisory authorityout-of-court settlement program proposed by, but other Polish banks are still awaiting the decision of the Supreme Court. RBI said it did not intend to participate in the program.
As of August 30, US $ 1 was equivalent to 3.87 Polish zlotys.