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SNB Decision Sparks Calls For Polish Mortgage Bailout; Central Bank Against It
As we noted last week, the Swiss National Bank's decision to un-peg from the Euro (thus strengthening the CHF dramatically) will have very significant repercussions - not the least of which is for Hungarian and Polish Swiss-Franc-denominated mortgage-holders. The 20% surge in Swiss Franc translates directly into a comparable jump in the zloty value of loan principles and and monthly payments for about 575,000 Polish families owing a total $35 billion in mortgages denominated in the Swiss currency which has prompted calls for Poland's government to bail them out. Never mind the FX risk, the low-rates were all anyone cared about and now yet another 'risk-free' trade has exploded, Deputy PM Piechocinski says, if the franc "remains above the 4 zloty level, the government may provide support" to debtors but Poland's Central Bank is not supportive of the bailout.
As Bloomberg reports,
The SNB’s abandonment of its franc floor roiled markets in some eastern European countries, where policy makers have tried to wean borrowers off of foreign currency loans.
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.
How big a problem is this? (via Goldman Sachs)
Poland.
Total balance of SFr denominated mortgage loans in Poland stood at PLN131 bn at the end of November which corresponds to 22% and 15% of retail and total lending respectively, and some 8% of Polish GDP. The individual exposures of banks under our coverage differ significantly with MBK, PKO having >20% of Swiss franc loans while the balances of PEO and BHW amount to <5%. SFr lending remains a legacy product, the balance of which has been declining over the recent years (-22% since 2009) and is expected to fall further.
Implications from strong depreciation of PLN vs. SFr predominantly relate to the risks of asset quality and to a lesser extent capital and liquidity. Strong performance of SFr denominated exposures over the last 5 years (2009-14) that came against 28% depreciation of PLN vs. SFr is largely attributable to the fact that mortgage installments remained stable because of declining LIBOR rates. In a press release published today (January 15), the KNF disclosed that according to their stress test, the depreciation of PLN by 30% to circa 4.5 level should not have meaningful and systemic implications for the sector (CET1 - 20bp to 13.3%), while a 50% move (towards 5.1 level) could see banks’ CET1 ratios come under moderate pressure (CET1 -100bp to 12.5%).
We cut our earnings estimates for Polish banks by 3% in 2015 and -3% in 2016 to better reflect weaker asset quality and topline trends; we modestly lower our CET1 forecasts.
And despite the Polish Central Bank's comments that:
- *POLISH CENTRAL BANK GOVERNOR BELKA SPEAKS ON RADIO TOK FM
- *BELKA SAYS CHF LOANS CONVERSION `NOT WISE'
- *BELKA SAYS MOST POLISH CHF BORROWERS WILL BE ABLE TO PAY DEBT
- *POLISH C. BANK MEMBER ZIELINSKA-GLEBOCKA SPEAKS ON TVNBIS
- *ZIELINSKA SAYS IS AGAINST STATE ACTIONS TO HELP CHF BORROWERS
- *ZIELINSKA SAYS IS AGAINST HUNGARY'S STYLE MEASURES ON CHF LOANS
- *ZIELINSKA SAYS POLISH C.BANK SHOULD TAKE NO `NERVOUS' ACTIONS
Here come the populist politicians to the rescue...
The government will watch “further developments on the FX market,” Krystyna Skowronska, head of the parliamentary finance committee and a representative of the ruling Citizens Platform party, said in an interview with Radio 1 on Monday.
Poland’s Financial Stability Committee, whose members include the finance minister, the central bank governor and the financial market watchdog, is meeting tomorrow to discuss the loans. Some commercial banks will also attend, Jacek Bartkiewicz, a central bank management board member, said in interview with Radio 1.
“The Polish government could help borrowers with franc-denominated home loans if monthly repayments are too high compared with their income,” Bartkiewicz said. Such measures could include helping borrowers with monthly installments exceeding “say, 40 percent” of their income or the “transfer of some government aid for new home buyers to those in trouble now,” he said.
Banks should also agree to renegotiate loan contracts with clients, helping them ease the burden of higher debt costs by, for example, extending loan maturities, he said. He added the zloty may remain above 4 against franc “in the mid-term.”
* * *
Perhaps - just perhaps - the 575,000 mortgage holders that exposed themselves directly to FX translation risk all with the aim of lower interest rates to afford thaty bigger home - should learn a lesson from this... one which, it appears, few in the new normal are ever allowed to experience.
* * *
But Poland has a bigger problem than just mortgages. As Goldman Sachs goes on to explain...
Poland appears to be most exposed to CHF strength, given the size of remaining CHF debt. But although a stronger CHF will hit the budgets of households with CHF loans, CHF appreciation should not trigger systemic growth or stability problems.
At PLN131bn, the stock of the remaining CHF loans is still substantial (an equivalent of EUR30.5bn, or 7.7% of GDP), even though banks have not been extending CHF or other FX mortgages for a few years now and the vast majority of new lending has been in the Polish Zloty. Some 550 thousand households still have CHF loans, out of some 700 thousand with FX loans in total (in a country of 38 million) And, unlike in Croatia and Hungary (where FX loans had constituted larger shares of GDP), there has been no policy induced transfer of the currency exposure to banks. FX loans are one of the best performing bank assets (NPL at 3.1%, against an average NPL of 8%).
At current market pricing, a stronger CHF, even if partially offset by lower Swiss interest rates, will still have a discernible impact on household budgets, although it should not trigger a systemic growth problem. Looking at an average household with a CHF mortgage, we calculate that a combination of CHF appreciation against the PLN (some 22%), and the fall in interest rates after the cut by the SNB of around 50bps (CHF mortgages are indexed to CHF rates), will increase an average monthly mortgage payment by some PLN350, or EUR85. In total, the increase would add up to some 0.15%-0.2% of Polish GDP, or 0.25% of private consumption.
While this might not seem that much on a macro scale, an extra PLN350 in loan repayments could subtract some 9% from an average gross wage, or nearly 5% for a higher earning person (CHF loans were more popular among higher earners). Assuming the average income tax burden, higher mortgage payments would reduce disposable income for those earning twice the average salary and having an average CHF mortgage by some 6.6%. Also, more households will be pushed into negative equity (the size of the mortgage will exceed the value of the property); the negative impact on households' net wealth could also affect consumption. And given the high growth multiplier of consumer spending, the impact could be deeper than the initial 0.2% of GDP.
According to the recent stress tests from the Polish regulator KNF and the NBP, a stronger CHF should have a limited impact on overall financial stability. Recent tests indicated that banks can handle a stronger CHF (given that households carry most of the FX risk) and the increase in non-performing loans should also be limited. Also, banks should remain well capitalized even with the CHFPLN at 5.0 (the PLN traded at around CHFPLN 3.5 ahead of the SNB decision). Given that Polish (and many European) mortgages are full recourse, a higher share of negative equity loans will not necessarily trigger a wave of defaults or banks demanding extra collateral (like deposit blocks) or insurance protection from the households. But an even higher share of households with negative equity could cause the real estate market to stagnate.
However, a large CHF depreciation would require additional hedging by banks funded through cross-currency swaps (and not by FX lending from parent banks or FX deposits). We would assume that the regulator has been monitoring these risks; high liquidity in the banking sector should also help with covering those extra funding needs. But with banks being well capitalized, the cost impact should not have a large impact on the sector, although the demand for FX may put additional, occasional pressure on the Zloty. An externally driven increase in PLN volatility increases the risk of the NBP intervening in the FX markets, should the Zloty weaken rapidly over the course of a few days, without a clear domestic driver.
* * *
The Repercussions are only just starting...
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Get in line...
do we have liftoff Janet?
Zero accountability anymore.
"It wasn't my fault. I want a Bailout."
The Central Bank do not care for the little people.
http://youtu.be/_zRVAXAX-pI
are we just talking about arm's....or am i missing something completly?...help...
No, we're talking about a bunch of Pollocks who took out mortages on their house in Poland, but instead of the mortgage being written in Euros (like they earn in their paycheck), they were written to be paid in Swiss Francs. This is absolutely wonderful for getting a lower interest rate up front. However, if the Swiss Franc appreciates 20+% vs. the Euro (as it just did recently when the SNB unpeged from the Euro) that means they have to use 20% MORE EUROS OUT OF THEIR PAYCHECK to pay their mortgage payment. Starting NOW. With no warning.
Refinance into a Euro-denominated loan? Nope. The balace owed is likewise in Swiss Francs so they just dropped about 20% in LTV as well (or owe 20% more in Euro terms to pay off the mortgage than they did a couple days ago, if you want to look at it that way).
That's what you call being well and truly fucked.
NEVER EVER EVER pledge your debts to be paid in a different currency than your earnings. Ever.
Yep. Hard to feel sorry for them, but that was dumb as hell. Betting your home on the Swiss deliberately sinking their currency with that dumbass experiment called the euro.
How many Canadians have bought homes or condos in the USA in the last 10 years? How many are totally fucked right now?
One thing I'd like to walk back about my previous post is that Pollocks don't use the Euro. They are a member of the EU but they still have their own national currency. If you remove "Euro" from my post and substitue "Zloty" the basic concept still stands.
Wondering why I got down-votes so I did some research and, indeed, I was off in my explanation. My bad.
... and the Poles are somehow worried about the Russians!
Talk about misplaced worries...
We worried some people...
True.
I suspect even these loans was made into CDO and CLO. So we can gues what will happen.
And I go even further, everybody has the suspicion about the existence EUR/CHF and US$/CHF derivatives, what about the other derivatives tied to CHF?
Houston, we have a problem!
Therein lies the rub, Polish central bank has base rates of 2%, ECB/SNB are near/below zero, hence everyone thinking they were being very clever using interest arbitrage.
Jim Cramer predicts a bull market for jokes.
http://www.quickmeme.com/img/54/548428845e1581a9437bdc794e6aaad552f8f62a...
jim cramer IS a bull mkt. for jokes
Polish are paid in the zloty not the euro.
No, the value of the Swiss franc is higher compared to the polish currency. So to pay back your fixed rate franc denominated mortgage you need to pay more in polish (whatever the fucks). So, your disposable income just dropped. A lot.
No shit. Don't these people know that bailouts are only for insolvent banks? But in all seriousness, if only there was a form of money recognized throughout the world that could do away with all of these different fiat currencies that are created out of thin air, causing problems like this...
A much better solution would be to deal away with money/currency all together, aka the Zeitgeist solution.
Perhaps - just perhaps - the 575,000 mortgage holders that exposed themselves directly to FX translation risk .... should learn a lesson from this.......
If they want to pay the mortgage off quick volunteer to go to Ukraine and murder separatists........and the USA will pay the Balance upon DOA!
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Sometimes Polish people can be over-sensitive. My neighbor is Polish and he told me the
other day that he recently ordered a kilbasi and was asked if he was Polish.
He replied to the cashier: " If I ordered a pizza, would you ask me if I was Italian?"
" No sir " said the cashier. He replied: " If I ordered a knockwurst, would you ask me
if I was German?" Again the cashier said " No sir " And my neighbor responded: " And
if I ordered a gyro, would you ask me if I was Greek?" Again the cashier said: " No Sir "
" Then why would you ask me if I was Polish when I ordered a kilbasi?" The cashier
answered: " Because this is a hardware store sir."
so if a German asked for a knockwurst in a hardware store he would have asked him if he were Polish... ha-ha-ha? the joke's spoiled man :P
Pollack buys a chain saw and goes out to cut wood. After a couple of days working with it he brings it back to the hardware store, tells the guy 'this thing dont work for shit!'
Hardware store takes the store, pulls to cord and starts it.
Pollack says 'what's that noise?'
Just make the lenders whole, baby. It's all that matters.
Fire Officers Legarde and Draghi are on hand to deal with this.
'cept their hoses they use to douse the flames are filled with petrol!
And knowing those two they'd probably put it out.
What were those precious words of Ms Nuland, again?
"In Latvia, I am taco."
-- Victoria Kaganudelmandrakeroot Nuland
http://www.quickmeme.com/img/99/9923c5dbc4bd4e7f76c34396f16b816b96de2ea8...
The trouble with spreading "capatalism, democracy & freedom is the "middle class" of these previously repressed countries have aspirations & no nous.
Debtors looking for a bail-out again. Shocker.
Last night my friend and I got into a discussion about derivatives, the SNB, etc, and my friend mentioned if worse came to worse, "They will just write everything off".
I stared at him for a moment and asked "Where do you think those write off go to, write off heaven? They were an asset to someone."
I also asked him.
Supposed you had $10K in the stock, and owed $5K in credit card bills. Then one day, your stock is wiped out, will your debt go away?
Then again, for most people, everything works fine, the sun is shining, life it great, until it is not.
Ya people don't get it. Also, with regard to bail ins and your bank gets wiped out, or there is a bank run and you can't get out more than 100 a day, if anything, you can be assured they will still expect to get paid in full for any credit card debt or loan debt you have with them. They win, you lose.
tylko plakac
My wife is Polish and she reckons Poles are really smart.
If they were that smart then they would have bought Swiss Francs instead of Swiss Franc mortgages.
what was that, down there for dancing?
banks were pushing CHF loans to Polish throath very hard, often refusing giving loan in local currency, but very happy to give 100-130% mortgage in CHF. It worked, because polish political class is totally corrupted by bankers
I say bail out everyone. Crash the fucker.
No moar bail outs. Just bail ins.
we're gonna have to mortgage some stuff....
If their loans were to have become 20+% cheaper to service they would have taken the windfall and not clamoured to have the extra cash taken from them and provided to other people for any conceivable reason.
They would have screamed and howled at the unfairness of having to share their good fortune if there was a fat tax on an FX conversion windfall or the like!
Good for them is good for them alone, but, bad for them should be shared by all of us for some illogical reason!
Fuck them. Cue the Polish jokes!
They must feel like they've been poleaxed.
The technique of a mass movement aims to infect people with a malady and then offer the movement as a cure.
Eric Hoffer
I am starting to realize that is it ok to take any stupid risk as long as a large enough number of others are doing the same, so it is going to be politically unfeasible to allow all of them fail. Money will be printed to bail them out. It just doesn't pay to be prudent and fiscally concervative in the new normal.
Bailing out half a million mortgages by printing Zloty will de-value the Zloty even more punishing everybody in Poland with extra inflation. That then opens the flood gates for businesses to be bailed out that borrowed in SWF.
It would be a very bad decision for the country.
We know somebody in Poland who took out a Swiss Franc mortgage a few years ago , he thought he was a wise guy at the time. I asked him what would happen if the Zloty dropped he said that would never happen and thought I was a dumb-ass for even considering that possibility.
You go ahead and roll the dice on that if you want to. The days of this clusterfuck are numbered
'There's safety in numbers and then there's fly paper.'
This is what someone gets when they trust a bank with their money.
hey how many polocks does it take to change the lightbulb intern underwater Pollock house, 5 one to hold the light bulb and four to spin the ladder around
How many NOZZLES does it take to incorrectly tell a joke, just one because he is an idiot.
FYI, Pole jokes came about when they migrated to the US to escape communism. When they came they were at the bottom rung of the social ladder, like most non-English speaking immigrants. They became apart of the fabric by working menial jobs and making the dream, hilarious.
Yoe're quite corect. But the Poles and other refuse to realizee that Russia was the first nation to fall victim to fall to communism.
Far too many people who should know better use USSR and Russia interchangably.
Ruusai fell to the Bolshie's, funded by western banks. Incidently, the Bolshie's first secret police cheif was a fine Pollack named Dzherzhinsky. (There's still a town in W. Poland named after him.)
Dzier?y?ski was of polish ethinicity, true, but he, just as rest of this bunch, didnt care bout that- they considered themselves as 'communist', or just 'soviet people'; (kinda like americans consider themselves 'americans' not 'alaskans' or 'texans'). He created NKVD, which was soviet version of Gestapo, consisting in 90% of soviet Jews).
What does it matter if Russia fallen first? They were cruel and brutal before revolution and after it, just names and ideology changed
DIDN'T TAKE LONG. ANOTHER DEAD BANKER. Forex trader who worked for HSBC and Royal Bank of Scotland and as head of Forex Trading for National Australian Bank, walks into the mountains on the day Swiss dump the Euro, found dead four days later.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11386699
Yes but did they package them into CDO's and sell them on to the Asians??
NOBODY KEEPS TOXIC SH#T ON THEIR BOOKS THESE DAYS.PASS THE STINKY TURD ONWARD.
There would not have been any compaints had the fx rate swung in the opposite direction.
Privatise the profits , socilaise the losses.
I don't think you would have seen the mortgage brokers in that case say "you know what, we will lower your mortgages".
Not sure about Poland, but in the UK at least its common for banks to issue tracker mortgages that have to follow the central bank base rate. I had a mortgage on a house that went down to about 0.1% in about 2009.
But their mortgages were borrowed in a different currency , they borrowed swiss francs and were paying their loan back in swiss francs. Interest rates have nothing to do with it.
They are paying their mortgages back in swiss francs. If the value of the franc dropped so would their mortgage repayments. Unfortunately the opposite has happened.
The board is set, the dominos are falling, pieces are moving. Last man standing wins.
just curious.
if you bail out the bankers who make stupid financial decisions,
why not bail out the little guy that does the same.
sounds only fair doesn't it?
Unfortunately that is very true. Bailing out crooked bankers will go down in history as one of the worst decisions ever made. Taking risk off of the table is not capitalism. It is communism and will lead nowhere good , for anybody , especially the rent-seeking parastic class.
Rob a liquor store and you end up in jail for a long time (which is also a money making machine). Blow up the financial system and make millions of people lose their jobs, houses and pensions and you get a bailout and a big fat bonus.
It is curious. When you can't pay your mortgage you lose your home. "Your bad business decision" they tell you. No bailout for you. When the lender is in trouble they get a bailout. It is not that they go belly up and you get to keep the house. Bad business decisions on their part after all.
Well , it's a big fucking club , and you ain't in it.
Forget Capitalism , that's long gone. We are now on the Crony Capitalism road all the way to all out communism. Shame the rent-seeking parastic class don't see it that way , they will actually be the biggest losers out of all this shit once they have killed their host and there is nothing left to leech off of.
It is the privatization of the profits and the socialization of the losses. Plain old robbery. Old as the world.
Anybody who takes out a foreign currency mortgage is knowingly taking an additional risk - over and above the risk of their capital asset value falling.
As usual, what we see now in Poland is exactly what happened in the UK when the markets crashed: people with mortgages whining and demanding a taxpayer bail-out (carefully described as a "government" bail-out). The threat was that if government didn't bail them out with lower interest rates etc etc, thousands of homeowners would become homeless. MSM TV cameras would be broadcasting footage of the mean government. No mention was made of the fact that vast numbers of these mortgagees were property investors (BuyToLet owners), and many others had taken on mortgages that were way above their ability to repay, except in a booming economy, for the sole purpose of making more money from capital growth.
As usual, the government surrendered and introduced Zirp. Who pays the price? Yes, savers.
Yes, it is privatising profits and socialising losses. Has it ever been any different in the modern era?
"A stronger CHF should have a limited impact on overall financial stability"
Of course, no negative news ever matters anymore as it hasn't for the last six years. Despite millions of reasons why any sane person wouldn't want to, BTFD.
Let them eat CHF. The mortgage writers should be forced to take the hit!
jump in the zloty value of loan principles and and monthly payments for about
Think you will find PRINCIPALS more apt
FYI, Pole jokes came about when they migrated to the US to escape communism. When they came they were at the bottom rung of the social ladder, like most non-English speaking immigrants. They became apart of the fabric by working menial jobs and making the dream, hilarious.
Trend in the Polish real estate market perfectly fits speculative bubble theory
http://i.imgur.com/TefjkWs.png
http://justpaste.it/banka-nieruchomosci