Poland Faces Home-Loan Fallout From Swiss Franc Shock

By Martin M. Sobczyk

WARSAW--The prospect of the Polish zloty remaining under pressure against the Swiss franc in the months ahead risks putting a strain on hundreds of thousands of Polish borrowers who have mortgages denominated in the Alpine currency.

Poland's financial officials are trying to assess how many Poles are likely to default on their loans after the Swiss National Bank scrapped the cap on the Swiss franc's value against the euro last week, said Jacek Bartkiewicz, member of the National Bank of Poland's executive board. On Monday afternoon, the Polish zloty was some 27% lower against the franc versus a year ago.

"At this point, one should be helping those who can't survive, who would lose their apartments," said Mr. Bartkiewicz.

Swiss franc loans were popular in Poland and Hungary during the real-estate boom immediately before the financial crisis because financing in domestic currencies was much more expensive.

Most of the 566,000 Polish borrowers who have loans in the Alpine currency took them in 2006-2008 when the zloty was closer to 2.5 or even below 2 to the franc compared with current levels around 4.26. Falling interest rates in the Swiss franc have previously insulated Polish borrowers from the sharp depreciation of their own currency in the aftermath of the global financial crisis but the removal of the SNB floor now means much higher interest payments.

Hungary until recently faced an even more acute problem when its forint currency faced even bigger selling pressure due to the country's high external debt. To ease the burden on borrowers there, the ruling Fidesz party of Prime Minister Viktor Orban late last year decided all such mortgage loans would be converted to the forint at a fixed rate.

The Hungarian leader over the weekend praised his government and the central bank for making the move, which has made the Swiss franc's fortunes largely irrelevant to Hungarian borrowers.

In Poland, authorities are unlikely to follow similar footsteps so as not to destabilize public finances or the banking sector, which is benefiting today from years of conservative lending policies.

Shares in Polish banks, which at the end of the third quarter of 2014 had a combined portfolio of 131 billion zlotys ($35 billion) of Swiss franc-denominated loans, have fallen sharply since the SNB's move.

How Poland will react to the impact of the strong Swiss franc isn't yet clear.

Poland's Deputy Prime Minister Janusz Piechocinski said at the weekend that the country would come up with a plan of providing "rational support" for home owners most exposed to the strong Swiss currency. But central banker Anna Zielinska-Glebocka said on Monday on business news channel TVN that the matter should be resolved between borrowers and lenders.

"If the depreciation [of the zloty] reaches 15%, then some clients will not be able to take this hit and they may need some help in repaying their loans," said mBank SA Chief Executive Cezary Stypułkowski.

--Patryk Wasilewski in Warsaw and Veronika Gulyas in Budapest contributed to this article.

Write to Martin M. Sobczyk at [e-mail]