The EU’s top court said on Thursday that Polish judges would have to decide how to deal with a raft of controversial cases concerning almost €26 billion in foreign-currency mortgages. The outcome could have major financial consequences for Poland’s banks.
In a fortnight, Poland’s Supreme Court is expected to issue a landmark ruling on how to deal with contracts containing clauses deemed unfair, including questions of whether to annul them, as well as concerning the terms on which borrowers and lenders can seek compensation following a verdict.
The problem of foreign currency mortgages, mainly issued in Swiss francs, has animated debate in Poland for more than a decade. Hundreds of thousands of Poles took out such loans in the 2000s to take advantage of low interest rates on the Swiss franc.
Later, however, many struggled to pay back instalments when the currency sharply appreciated against the zloty after the 2008 financial crisis and when the Swiss franc was unpegged from the euro in 2015.
Poland’s banks have appealed to the government for help if the ECJ rules against them over foreign-currency mortgages. A ruling is imminent, and if it is unfavourable could cost the banks at least 60bn zloty, the equivalent of four years' industry profits https://t.co/kTY3lYd2Aa
— Notes from Poland 🇵🇱 (@notesfrompoland) July 2, 2019
Following a 2019 ruling by the European Court of Justice (ECJ) in favour of Polish borrowers, the number of cases lodged in the country’s courts soared by more than 30,000 in 2020, according to Bloomberg. While borrowers have won over 90% of the time, a variety of interpretations of how to deal with their compensation have been issued by courts.
On Thursday, the ECJ said that “the effects of a finding by a court of the existence of an unfair clause” was “governed by national law” and hence national courts should decide whether the contract is continued. More than 430,000 households still have Swiss franc loans, according to Deutsche Welle.
The ECJ’s ruling was widely interpreted as not having worsened the position of banks, leading to an uptick in their shares index on the Warsaw Stock Exchange (GPW) to a 13-month high, according to Bloomberg, also boosted by positive earnings reports.
Tadeusz Bialek, deputy head of the Polish Bank Association, said the ruling suggested that contracts could not be cancelled “without reflection, automatically or at the customer’s request” reports Reuters.
Legislation could be passed to help Poland's banks deal with the problem of Swiss-franc mortgages following yesterday's EU court ruling, says the finance minister https://t.co/H68hW1IF8F
— Notes from Poland 🇵🇱 (@notesfrompoland) October 4, 2019
On 13 May, Poland’s Supreme Court is expected to issue its long-awaited guidance on how to consistently deal with a series of issues concerning compensation for borrowers who win their legal disputes.
It will also detail the conditions on which lenders might be able to counter-sue customers for using their capital over the period of the now-annulled loan agreements.
The unresolved raft of legal cases constitutes a major risk for Polish lenders, who will need to further increase their capital provisions against losses if the Supreme Court guidance is unfavourable. The ruling could push more Polish lenders to offer out-of-court settlements with borrowers.
Equity analysts estimate losses for banks as ranging between 30 and 60 billion zloty (€6.6-13.2 billion) if they are able to apply the more expensive Wibor (rather than Swiss franc Libor) interest rate. In the most unfavourable scenario, however, losses could even reach 235 billion zloty (€51.6 billion), reports Deutsche Welle.
Main image credit: pasja1000/Pixabay (under Pixabay License)
Maria Wilczek is deputy editor of Notes from Poland. She is a regular writer for The Times, The Economist and Al Jazeera English, and has also featured in Foreign Policy, Politico Europe, The Spectator and Gazeta Wyborcza.
