Poland has passed a law that aims to free citizens from mortgages and various debts denominated in Swiss francs and other foreign currencies. It is the consequence of the strong political pressure exerted on the central European governments by the borrowers affected by the exchange rate hike.
Warsaw's modest measure followed Hungary's debtor-friendly law, passed earlier this year. Both rules are responses to the sharp rise in the Swiss franc in recent years which has become a burden on investors, especially during the period of weakening the global economy is experiencing. Polish President Bronislaw Komorowski said the law was designed to "partially alleviate the effects of the crisis for some debtors who have access to Swiss franc mortgages." cIt will allow borrowers, when they pay off their loans, to avoid huge spreads due to currency conversion.
Almost half of the mortgages taken out in Poland (but also in Hungary, Romania and the Baltic countries) in the last two years are in francs, as during the last financial crisis it was considered the most stable currency and offered lower interest rates than the EUR. But if between 2006 and 2008 (the year in which most mortgages were contracted) the relationship between the Swiss currency and the zloty fluctuated between one to two and one to 2.5, yesterday the record was reached of 3.9242, approaching the threshold of 1 to 4.
Since central European currencies started to slip with the 2008 financial crisis, paying off mortgages in euros and Swiss francs has become increasingly difficult especially for consumers whose wages or jobs had been hit by the recession.
Polish banks have more than 600 mortgages in Swiss francs, valued at a total of $50 billion. However, according to the central bank of Poland, less than 1% of foreign currency borrowers defaulted on their installments in June. But higher mortgage payments are hurting private consumption and could undermine the overall growth rate of the economy.
The value of Polish loans in foreign currency exceed those of Hungary: about 70% of Budapest's private debt was borrowed in foreign currency. Some Hungarian local governments are victims of high franc debts.
Source: Wall Street Journal
