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Banks to take hit on 90% of FX mortgage losses as populist give-aways precede election

TAG'S: Banking

 

Polish banks will absorb 90% of the FX loss on conversion of CHF-mortgages to zloty and finance the client's 10% on preferential terms, a bill passed by the lower house late last week showed.

The legislation was amended notably during its final vote in the lower house. One last-minute amendment shifted the split of the FX loss to 90-10 from an initial 50-50 offer. Another set of amendments broadened eligibility.

The bill now travels to the Senate, which is entitled only to recommend changes for lower house final review before the bill heads to the President for signing, veto or constitutional review.

WHO QUALIFIES

FX-mortgage borrowers, only those meeting the definition of a consumer under Polish civil code, may submit their demand for loan conversion until June 30, 2020 provided the following criteria be met as of submission:

1) the borrower does not own any other apartment or single-family home other than the unit financed by the FX-mortgage, with the exception of units or shares of units inherited after the taking of the loan

2) the loan financed an apartment of no more than 100 square meters or a single-family house of no more than 150 square meters, unless the borrower is raising three or more children

3) the loan to value (LtV) ratio is above 80%

THE CONVERSION

To determine the value of the loan after conversion, the creditor bank will:

1) calculate the sum that would have been outstanding had the initial loan been issued in zloty and serviced as a zloty loan all along

2) increase that figure by the savings the borrower has enjoyed to date on monthly installments (i.e. the difference between the sum of monthly installments that would have been paid on that zloty loan and the sum of the zloty value of the installments that were made on the FX-denominated loan on individual calculations for each payment based on NBP FX rate for each installment date).

3) increase that figure by 10% of the difference between the actual outstanding principle on the current FX loan (NBP buy rate from the day prior to the client request) and the outstanding principle from the hypothetical parallel zloty loan mentioned above. Technically, by the letter of the bill, the total outstanding principle will be increased by 100% of the difference, then the bank will cancel 90% of that difference.

THE RESTRUCTURED LOAN

The restructured loan will function as two loans: one for the outstanding principle in zloty resulting from the summation of points #1 and #2 above, with terms and margins (now over WIBOR, not LIBOR or EURIBOR) to match the initial FX-denominated loan. The other loan will cover the 10% of the FX loss covered by the client from point #3 above, which will bear interest at a rate no higher than the NBP's reference rate.

OTHER TERMS OF THE DEAL

Clients opting for the FX conversion will be free of personal income tax on the gain from the cancellation of the 90% of the FX gain.

Clients have to the right to demand their bank provide them with the complete accounting on a potential conversion at any time.

2015-08-11



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