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POLAND: EU ruling on foreign currency loans

Poles have taken out around 713,000 loans and mortgages in foreign currencies, with a total value of approximately 173 billion PLN. Most were taken out in Swiss Francs, the value of which rose sharply in recent years, leaving some unable to repay. Activist groups also accuse banks of misleading clients by pegging the loan to their own currency rates rather than those of National Bank of Poland, a difference known as a ‘spread’.

One of the election promises of the ruling PiS party 4 years ago was to aid borrowers who suffered on these loans. Still, the issue turned out to be complex and targeted measures were not enough to aid all affected. This week the Court of Justice of the European Union boosted the hopes of borrowers when it ruled that EU law does not prevent contracts for mortgages in Swiss Francs from being annulled. Now consumers will be allowed to ask Polish courts to convert the loans into the PLN from francs, in a blow to banks, which will have to make significant paybacks. This, however, is not an outright victory for borrowers as it will be up to domestic courts to decide on contract alteration on a case-by-case basis.

Before the verdict, the Polish Banks’ Association warned that a ruling favourable to the clients would cost the entire banking system close to PLN 60 billion, but other analyses estimate that value at PLN 72 billion. Still, the financial regulator – the Polish Financial Supervision Authority (KNF) – stated that the system is ready to handle the verdict and that in the long-term the decision will “reduce systemic risk, bolster confidence in the financial system and the country’s economic stability”.