With forced conversions of Swiss-franc denominated mortgages on the way in 2016, The Banker looks at the current make-up of loan portfolios of foreign banks in Poland and assesses who is most at risk.

Banks in Poland are facing the fallout from the rapid appreciation of the Swiss franc in January, as the government plans to force the conversion of Swiss-franc denominated mortgages into zloty.

With parliamentary elections set to take place at the end of October, it is unlikely that any decision will be reached before 2016, prolonging uncertainty for banks. However, both the ruling party and the opposition have given their support to the policy.

With few exceptions, such as Polish-owned PKO and Getin Noble Bank, franc-denominated mortgages are offered primarily by foreign subsidiaries in Poland.

Data for the ten largest foreign banks in Poland – excepting Bank Handlowy w Warszawie, which does not offer a currency breakdown of its loans – shows that foreign currency loans are an important part of their business. In one case, Swiss franc loans amount to more than half of the entire lending portfolio (see chart).

Chart FW

These mortgages have recently seen high demand in Poland. More than half a million Poles took out such loans in order to benefit from the lower interest rate offered by what then seemed a steadfast currency.

Its sudden appreciation is particularly bad news for Bank BPH, where Swiss franc loans account for 53.5% of the loan book. It will likely disrupt the plans of parent company General Electric, which was hoping to sell the firm this year. General Electric has stated that it will seek compensation if the forced conversion bill is passed by parliament.

The Polish unit of Deutsche Bank has the next greatest exposure, nearly 36% of its loan book, followed by Austrian-owned Raiffeisen Bank Polska, where a third of customers loans are in Swiss francs.

Raiffeisen, which has a presence across Eastern Europe, has already been forced to convert the Swiss franc portion of its loan book in Hungary, where foreign banks have also been under pressure from the government.

Other banks with high ratios of Swiss franc loans include mBank, owned by Austrian Erste Group, and French-owned BNP Paribas Polska, which have shares of 25.4% and 21.4% respectively. Like Raiffeisen, Erste’s Hungarian unit has already had to bear the cost of forced conversions.

The risk that these loans present to the banks is not obvious. Mortgages in Swiss francs were typically given to customers with good credit history, and half-year reports suggest those mortgages are still being diligently repaid: in July, the proportion of loans in arrears at the ten banks was the same or lower than six months before. However, this is unlikely to shield lenders from the government in the coming year.

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