Polish central bank may support FX mortgages conversion under some conditions

WARSAW, Feb 9 (Reuters) - Poland’s central bank may consider becoming engaged in the process of converting foreign currency mortgages into zloty-denominated ones by banks under some conditions, it said on Tuesday evening.

Swiss franc portfolios remain a major risk factor for Polish banks, which face an increased number of lawsuits from franc mortgages holders, who face higher costs after a surge in the value of the currency.

The Polish Financial Supervision Authority, the country’s financial market regulator, proposed at the end of 2020 that banks shift their Swiss franc mortgage portfolios into zlotys.

The central bank (NBP) said that it was asked by a group of banks to support the operation, but that it is difficult to assess the banks’ initiative unequivocally at this stage, as it is connected to both benefits and threats to the financial system.

“From the point of view of the possible involvement of the NBP, the systemic nature of the operation is of critical importance,” the bank said, adding that not all banks plan to convert the mortgages, which means there is a risk that the problem may continue to weigh on the financial system.

“The NBP Management Board may consider a possible involvement in the process of converting foreign currency mortgages into zlotys, on market terms and rates,” the central bank said, listing required conditions.

The bank said that in order for it to support the process, a prevailing part of the FX mortgages would have to be subject to the conversion.

It also expects banks to present reliable information that a significant part of their clients are interested in the conversion and to obtain the shareholders approval for the operation, eliminating any legal doubts.

Also, banks would have to present binding plans of capital recovery, pledging to take actions aimed at returning to pre-conversion solvency and debt ratios, including no dividends and cost savings. (Reporting by Agnieszka Barteczko; Editing by Steve Orlofsky)