beyondbrics

After a crisis has passed,  it’s easy to forget what all the fuss was about.

Poland’s banking regulator is keen to remind its banks that risky lending is still, well, risky.

It’s mulling a new rule that would limit the amount of foreign currency mortgage loans a bank has on its books to 50 per cent, something that would clip the wings of the country’s more aggressive banks, which are edging back into forex lending after last year’s scare.

The Financial Supervision Authority says the revamped regulation is needed because the economic crisis showed the risks of having too much lending denominated in foreign currencies – as was apparent by what happened in the Baltic countries and in Hungary.

“The main reason for unstable credit booms in our region are mass lending to households in foreign currency,” says the rationale for the proposed new regulation.

Too high a level of forex borrowing ends up removing monetary policy levers from the local central bank, because interest rate changes do not affect people who have borrowed in foreign currencies. The regulator is acting because foreign currency loans are again becoming popular.

Such loans, the bulk of them in Swiss francs, make up about 65 per cent of outstanding mortgages. Forex loans shrivelled last year – amounting to only 5 per cent of new mortgages – both because banks became much warier about doling them out and because the value of the zloty plummeted, which made consumers much more aware of the downside of borrowing in a non-local currency.

However, as the economy and the housing market have recovered, banks have started lending in foreign currency again – now accounting for 18 per cent of new borrowing, although now the most popular currency is the euro not the franc.

If the rule comes into force, it will have an impact on banks like BRE, a subsidiary of Germany’s Commerzbank, DnB Nord and Deutsche Bank, who are doing a lot of lending in foreign currency. Other banks like locally owned Noble Bank and Millennium, a subsidiary of the Portuguese bank, have well over 50 per cent of their loan book in foreign currency, but since the crisis have lent mostly in zlotys.

The Polish Banking Association, a lobby group, warns that if the rule comes into force, it could stop some banks from issuing any mortgages for several years. So what’s the bigger risk – foreign currency mortgages, or no mortgages at all?