The Court of Justice of the EU handed down a long-awaited verdict in a Swiss franc mortgage loan case in Poland that could lead to significant costs for local lenders.
The EU top court ruled that unfair clauses relating to exchange rates in foreign currency-indexed mortgage loan contracts cannot be replaced by general provisions of Polish civil law.
"If, after the removal of the unfair terms, the nature of the main subject matter of those contracts is likely to alter, in that they would no longer be indexed to a foreign currency while remaining subject to an interest rate based on that currency rate, EU law does not preclude the annulment of those contracts," the court said.
The court's decision is generally in line with the May recommendations of its advocate general and favors Swiss franc mortgage loan holders, Polish media outlets said Oct. 3, although analysts cited by Reuters noted that the verdict is open to interpretation by local courts and the risk for banks is smaller than initially expected.
The shares of listed Polish banks with large foreign-currency mortgage exposures, including PKO Bank Polski SA, Millennium BCP unit Bank Millennium SA, Commerzbank AG unit mBank SA and Banco Santander SA unit Santander Bank Polska SA, fell after the ruling was officially announced, while the Polish Financial Supervision Authority said the country's banking sector is well prepared to handle the ruling's consequences.
The Polish Bank Association earlier estimated that lenders could face costs of at least 60 billion Polish zlotys in the event of an unfavorable ruling, although according to calculations performed by Moody's, potential losses for the local banking sector would be lower and amount to around 1.5x its 2018 profit, which stood at 14.5 billion zlotys, according to the FSA.
The actual implications of the ruling for local banks will depend on the number of borrowers that will seek legal action in local courts and the courts' final interpretation of the ruling, while potential costs will be spread over time.
At the moment, the number of court cases launched against banks by Swiss franc mortgage holders has been fairly small at 2.03% of the total number of such loans granted by banks, but it jumped by around 40% year over year, according to estimates of the Polish Bank Association.
As of Oct. 2, US$1 was equivalent to 3.98 Polish zlotys.
