Poland Rushes to Cut Swiss Franc Risk, Zloty Crashes 22%

Poland wants domestic banks to pass on negative interest rates in Switzerland to borrowers to ease the impact of the surging Swiss franc on $35 billion of mortgages denominated in the currency.

“We made it clear to banks and banks agreed to take into account negative interest rates,” Finance Minister Mateusz Szczurek told reporters after the four-hour meeting. “The market risk affects both banks and their clients. A client accepts the exchange rate risk while a bank takes the risk of interest rate moves.”

Polish measures stop short of Hungarian Prime Minister Viktor Orban’s move last year to order banks to convert $14 billion of foreign-currency mortgages into forint to cut his country’s exposure to currency swings. Switzerland’s unexpected decision to end its currency cap last week sent the zloty tumbling 22 percent against the franc, swelling payments for about 575,000 Polish families, who borrowed in the currency.

Polish bank shares have slumped since the Swiss central bank’s decision on Jan. 15, with Getin Noble plunging 24 percent and Millennium sliding 14 percent. PKO and MBank dropped 12 percent. On Tuesday, Warsaw’s WIG Banking Index fell to the lowest level since September 2013.

Regulatory Probe

The antitrust regulator started a probe into lending procedures to check whether banks unilaterally changed the terms on franc mortgages to exclude the possibility of negative interest rates, Chairman Adam Jasser told reporters on Tuesday.

The plight of mortgage borrowers may become a key issue in the run-up to this year’s general election in Poland because it may affect 5 percent of voters, according to PKO economists.

While Polish banks stopped granting franc-denominated home loans after the global economic crisis caused the zloty to plunge in 2008, mortgage holders in the country of 38 million are still paying off debt taken last decade when they saw the franc as a way to borrow cheaply in an environment of a strengthening zloty.