What The Soaring Swiss Franc Means For Hungarian And Polish Mortgages

Spoiler alert: nothing good, because what until yesterday was, indicatively, a 1 million mortgage (in HUF or PLN terms) is suddenly a 1.2 million mortgage. But what about the details?

Here they are, courtesy of 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.

Hungary. Total balance of SFr denominated loans in Hungary stood at HUF3.9 tr at the end of November, which corresponds to 26% of total lending and, similar to Poland, is largely FX retail lending. Importantly, the high nominal exposure is only temporary given that Hungarian authorities have already started a process of conversion of retail FX lending into HUF. The conversion rates were set in early November (CHF256; €309) and selected banks (OTP, ERST, RBI) have indicated that they have subsequently obtained necessary € and SFr liquidity. The conversion of FX mortgage loans is expected to come into effect as of February 1, 2015. Based on current information we do not expect a meaningful direct impact from the recent FX move.