Poland: clamping down on forex loans

Polish borrowers are about to lose one of the last vestiges of the long-gone real estate boom – the ability to borrow lots of money in a foreign currency.

The Polish Financial Supervision Authority (KNF) is preparing to throttle what little remains of forex lending later this year, limiting such loans only to people actually earning euros or Swiss francs.

Forex loans were enormously popular before the economic crisis in late 2008 ended a boom that began when Poland joined the EU in 2004. From 2006-2011, about 60 per cent of all new mortgages were denominated in foreign currency, largely Swiss francs, which were much more attractive than higher interest zloty loans.

However, the loans turned out to be a lot riskier than both borrowers and lenders had calculated when Poland’s zloty plummeted in value in 2009. Since then banks have been backing away from the product, with strong prodding from the KNF. In the third quarter of last year, less than 3 per cent of new mortgages were denominated in francs and euros.

The worry was that endangered forex loans could upend the banking system – something which did not happens, but regulators are now very cautious about such risky products.

Still, the hangover from the past party remains – about 56 per cent of outstanding mortgages are still non-zloty (making up about 34 per cent of the overall lending portfolio), down from 65 per cent of all mortgages at the end of 2009.

Foreign currency loans are currently only issued by eight Polish banks, reports Open Finance, a financial consultancy.

That’s not the only change being considered by the KNF. Although banks have reduced new mortgages by about 10 per cent in 2012 over 2011, new rules will make it still tougher to borrow. The regulator is thinking of changing the maximum allowed loan-to-value ratio for a mortgage from 100 per cent now to 80 per cent in 2015.

With well over half of outstanding loans at an LtV of more than 80 per cent, that could make a dent in an already fragile market.

The KNF has also stopped practices like extending the life of a loan to ridiculous lengths in order to make the payments affordable – the limit is now 25 years.

Under pressure to get a moribund real estate market moving again, the KNF is likely to loosen a restriction imposed in 2012 that limits monthly loan repayments to 50 per cent of income – now banks may be able to set their own limits.

However, that is unlikely to make much of a difference to new lending, especially with the expiry as of the end of 2012 of a popular government programme aimed at subsidising new borrowers that accounted for 190,000 mortgages over the last few years.

All that means more glum news for a battered real estate sector.

Reas, a real estate consultancy, says that new construction permits were down by 9 per cent in first 11 months of last year. Over the last five years, housing prices nationally have fallen by 27 per cent, although they are still higher than they were in 2004, according to Home Broker, a consultancy.

Related reading:
Poland’s banks: keeping a tight ship, beyondbrics
Poland: banks braking lending, beyondbrics
Poland: little relief on Swissie loans, beyondbrics
Polish mortgages: a pain, frankly, beyondbrics