It wasn’t only retail forex brokers which got hit hard from the January Swiss Franc spike.
The removal of an implied floor on the Franc by the Swiss National Bank back on January 15 – which sent the Swiss Franc soaring more than 20%+ against most other currencies – came as a surprise to many in the currency trading world (notably Alpari UK and FXCM come to mind), but also had lasting effects in other areas of consumer finance.
And one area was the Polish mortgage market.
What does the Swiss Franc have to do with Poland?
Well it turns out that in the past several years quite a large number of Poles took out mortgages denominated in Swiss Francs, often from international banks with offices in Poland. Reports are that more than 500,000 Poles – representing nearly 5% of all households in the country – took out home loans denominated in Swiss Francs hoping to benefit from much lower interest rates charged on CHF loans than on Zloty loans. The move was viewed by many Poles (and marketed by banks in the country) as relatively low-risk, given the relative stability of the Swiss Franc over time.
But all that fell apart on January 15. Many Polish borrowers are now sitting in homes having less value in Zloty that the outstanding mortgage on those homes, plus a cash flow problem to boot.
Poland’s parliament – which is in the midst of elections scheduled for next Sunday – had debated but eventually shelved a plan which would see lenders and borrowers share the ‘pain’ of the rise in the Franc in converting the loans to Zloty, but the bill was eventually shelved. The total cost of the plan approached $6 billion.
In the interim, Poland’s President Andrzej Duda has now indicated that he will be moving forward a new plan to divide the cost of Zloty conversion between the borrowers and the banks. But again, the hard part is always in the details and execution. A number of big and foreign banks in the country are now concerned that the ‘plan’ will be mostly a haircut on the banks, similar to the shelved parliament bill which at one point had the banks shouldering 90% of the burden.