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Poland orders Swiss franc mortgage probe, weighs "extraordinary" measures

[WARSAW] Polish Prime Minister Ewa Kopacz ordered an investigation on Tuesday into local banks' offering of mortgage loans in Swiss francs, a practice which has put 550,000 Polish homeowners at the mercy of financial markets since the franc surged last week.

Separately, the heads of major banks were due to meet the finance minister, regulators and Central Bank governor Marek Belka at 1300 GMT, a day after Belka called for "extraordinary" measures and a possible cut in mortgage rates to provide relief for borrowers.

Many home buyers in central and eastern Europe took out Swiss franc-denominated mortgages in the early 2000s. Despite warnings about the risks from some economists at the time, they opted for the loans which carried interest rates in the low single digits over paying double-digit rates on zloty mortgages.

With the franc up about 20 per cent against the zloty since last week, these borrowers now face a huge jump in their mortgage repayments.

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The government issued a statement that the regulatory inquiry should verify that the banks' activities "do not affect the legally protected interests of borrowers-consumers".

Poland's stock of Swiss franc-denominated mortgages stood at about US$36 billion at the end of November, almost 8 per cent of gross domestic product in central Europe's biggest economy.

But the franc jumped to 4.3 zlotys from 3.6 last week following a decision by the Swiss National Bank to scrap its cap on the currency against the euro, piling pressure on the Polish government to act with parliamentary elections due in October.

Croatia said on Monday it would fix the franc exchange rate against the local kuna currency, and Hungary said both Zagreb and Warsaw had shown interest in Budapest's move late last year to convert foreign currency mortgages into forints.

One Polish borrower, Jacek Sledzinski, said his monthly mortgage instalment had shot up since Wednesday last week by more than 900 zlotys (US$241).

"When I heard the news about the franc my first reaction was disbelief. Then came slight horror - what would happen next," said Mr Sledzinski, 40, a lawyer with a two-bedroom flat his family bought around a decade ago in an upscale Warsaw district.

Bankers in Poland say they have yet to decide how to react, calling first for policymakers to take a stand. "The situation is volatile and emotional; it's not the time to take violent decisions," one banker, who asked not to be named, told Reuters.

"We will analyse the situation to assess how the franc influences our asset quality, and will take the decision no earlier than in three months." Banks, however, may not have that long, given the pressure on the ruling Civic Platform party to act before the election in which it is running neck-and-neck with the Law and Justice party, according to an opinion poll published by the Rzeczpospolita daily on Tuesday.

"I know that some banks are working (on this) and in the next few weeks they will suggest, most likely, keeping the December exchange rates (for some time)," Krzysztof Pietraszkiewicz, the head of the Banks Association, told private radio TOK FM.

Belka, the central bank governor, has indicated he wants the banks to bear some of the burden, saying on Monday: "FX risks that those borrowers take solely today must sooner or later be distributed between the two (borrowers and banks)."

Central Bank board member Jacek Bartkiewicz suggested on Monday that banks should help those whose mortgage payments exceed 40 per cent of their monthly salaries.

Both Poland's regulator and the central bank insist the current level of the franc does not pose a risk for Polish banks, which are already among the healthiest in Europe.

Central bank research, however, shows the sector could face problems if the exchange rate reaches 5.19 zlotys, because of the numbers unable to make their payments on loans taken at franc rates that vary from just above 3 to even around 2 zlotys.

Analysts also say they see no threat to the stability of Polish banks, but the franc surge may cut their ability to pay dividends.

"Early calculations show that only in the biggest Polish bank PKO BP Tier-1 ratio will fall below 12 per cent and only in this bank there can be a problem with dividend payout," Dariusz Gorski of DM BZ WBK brokerage said.