Has Poland defused the “Franc bomb”?

Luc Williams

The Polish Financial Supervision Authority recently provided quite surprising information about housing loans settled in Swiss francs. We're talking about data that shows that There are now fewer than 250,000 such problem loans on bank balance sheets. This is an important fact because many people may still remember media reports of 400,000 or even 500,000 housing loans settled in Swiss currency. Currently, the value of these “mortgages” constitutes less than 1% of Polish GDP. Until relatively recently, the situation was different and much more dangerous, as experts from the RynekPierwotny.pl website remind us.

The situation 10 years ago was dangerous for Poland

RynekPierwotny.pl analysts have been describing the topic of “franc” housing loans for quite a long time. It is worth recalling their historical calculations, which indicate that the value of loans in Swiss francs for the non-financial sector as a percentage of national GDP in Q3 2014 was as follows:

  • Hungary (before forced currency conversion) – 12.2% of GDP
  • Austria – 11.6% of GDP
  • Croatia – 8.8% of GDP
  • Poland – 8.2% of GDP
  • Greece – 4.9% of GDP
  • Slovenia – 2.8% of GDP
  • Romania – 1.6% of GDP
  • France – 1.0% of GDP
  • The Netherlands, Germany, Belgium, Italy, Spain and Sweden – below 1.0% of GDP

These percentages were calculated by RynekPierwotny.pl experts based on data from the European Central Bank and Eurostat. Compared to the Polish result from 2014, the current value of problematic loans, which amounts to approximately 0.7% of GDP, looks modest. It is worth remembering that the change that has occurred over 10 years is not only the result of the decreasing value of the Swiss franc portfolio, but also the growing GDP of our country. High value of CHF loans from 10 years ago – including: in terms of GDP and banking assets, it did not destabilize the banking sector and the entire economy. This does not mean, however, that we should forget about responsibility for the situation – also on the part of politicians and financial supervision.

The decreasing number of Swiss franc contracts

The previously mentioned value of “franc” loans, amounting to approximately 0.7% of GDP at the end of January 2024, amounts to PLN 22 billion in monetary terms. The chart below presents changes in the value of the portfolio of problematic housing loans from January 2023 to January 2024. It is noteworthy that the total value of “franc” loans decreased from approximately PLN 51 billion for a year, which is much faster than the number of contracts ( January 2023 – 305,000 contracts, January 2024 – 241,500 contracts).

The explanation for the described situation may be the fact that loans with above-average current value disappeared more often from the “franc” portfolio. Holders of such liabilities were most willing to bring lawsuits against banks and enter into possible settlements. NBP data from the end of 2023 indicate 74,000 loan settlements worth approximately PLN 12.5 billion. The number of settlements concluded, according to NBP calculations from December 2023, represented approximately 56% of the number of agreements questioned in court.

In the context of court disputes, it is worth remembering that banks need to create high provisions for legal risk. The above-mentioned write-offs significantly reduce the carrying amount of the disputed loans. In addition to lawsuits, judgments and settlements, repayments – both on-time and early – also contribute to the decline in the total value of the Swiss franc portfolio.

Claims after repayment of the loan will be very important

The systematic decline in the number and value of Swiss franc loans, which is also reported by the National Bank of Poland, does not mean, of course, that the problem has been completely solved. The December NBP report on the stability of the financial system classifies the risk associated with Swiss franc loans as the most serious threat. This assessment of the central bank experts is not changed by the fact that in mid-2023, the banks' total reserves accounted for almost 2/3 of the then value of the portfolio of all housing loans settled in CHF.

It should be noted that at the same time, the provisions relating to already repaid “franc” loans amounted to only 7% of the total provisions. This structure of bank reserves reflects the current situation. We are talking about relatively rare cases of lawsuits filed by Swiss franc borrowers who have already repaid the debt. A change in this respect could be problematic for banks, as further demand for reserves would increase from the level of PLN 25 billion to PLN 40 billion recently estimated by the NBP. Let us recall that at the end of 2012, domestic banks still had 581,000 housing loans with indexation to CHF.

Loans in CHF / Rynekprimotny.pl


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