As Swiss franc borrowers pop champagne, Polish bankers worry

Warsaw, Poland – On Thursday morning, Justyna Dziubak sat with her hands clasped tight at a news conference here in the Polish capital. Just after 10am the European Court of Justice (ECJ) was to rule on her Swiss franc mortgage case against Raiffeisen Bank, which she had fought through Polish courts for three years.

As coverage from Luxembourg streamed in, those who read it first on their phones began to clap. Applause spread through the room and Dziubak broke out into laughter.

The ECJ had ruled in her favour. A man rushed up to the stage with a bottle of champagne. 

Dziubak and her husband are among the 470,000 Poles who hold mortgages in Swiss currency.

The ruling has been hotly anticipated by thousands of mortgage holders, as it sets a precedent for some 15,000 open legal disputes with banks. It is also likely to encourage more borrowers to file lawsuits.

The Polish banking lobby, less thrilled by the outcome, has estimated that the decision could cost lenders up to $15 billion, around four years of industry profits.

The sector holds a $31 billion portfolio in foreign currency loans. 

Pole tax

After Poland joined the EU, more than half a million Poles took out Swiss franc loans. The Polish zloty had been on an upward trajectory against the stable Swiss franc, and foreign-currency-denominated loans made for cheap borrowing.

Yet during the financial crisis, capital flocked to the safety of the franc, pushing up its price. A final blow came in 2015 when the Swiss National Bank scrapped its currency’s peg to the euro. In the past 11 years, the franc doubled its value relative to the Polish currency.

Many borrowers were now unable to keep up with spiralling repayments. Thousands contested how banks calculated the amount to be repaid, and became to be known as “Francovitz”. 

In 2011, the Dziubaks took out a franc-denominated mortgage worth 400,000 Polish zlotys ($101,500). Despite having paid back 220,000 zlotys ($55,800), they still have 520,000 ($132,000) left to pay, Dziubak tells Al Jazeera.

Last year, a Polish court deemed the Swiss-franc indexation clause in her mortgage agreement unfair and asked the ECJ whether it could replace it with general provisions of Polish law.

On Thursday the EU’s top court said that it could not. The Polish court must either interpret the contract without the doubtful terms, or annul it altogether.

In the first case, the bank would be forced to convert the Swiss franc loans to Polish zlotys at the historic exchange rate. That would lower the Dziubaks’ remaining debt from 520,000 to 250,000 zlotys. Interest would, however, remain pegged to the Swiss LIBOR (now negative), meaning that Polish banks would have lent out money more cheaply than they could borrow it.

In the second case, it would leave her with just the remainder of the principal to pay back – now 180,000 zlotys. The fees and interest that she had paid along the way would also count towards principal repayment.

Establishing precedent

According to Mariusz Korpalski, a lawyer involved in franc mortgage cases, the Polish court should reach a verdict by the end of the year.

Thursday’s legal precedent can already apply to similar open cases. “The first judgement based on the [ECJ] ruling could be as early as today,” Korpalski told Al Jazeera.

“The chances of borrowers winning lawsuits have significantly increased and it would be tough to imagine that anyone with a franc mortgage wouldn’t take advantage of this,” said Barbara Husiew, a director at the “Stop Banking Lawlessness” group, speaking at a press briefing.

“A lot of people have been waiting for today’s ruling, so the number of court cases will grow exponentially,” Korpalski added.

Several law firms have specialised in Swiss franc mortgage cases. “The phone’s been off the hook today,” said Beata Komarnicka-Nowak, a lawyer who has filed class-lawsuits against Polish banks in relation to non-zloty loans.

“This year has been a breakthrough year, because up until now banks would win 90 percent of cases. This year, tables have turned and many more cases are being filed,” she told Al Jazeera.

Banks hit hard

The Polish Banking Association has warned that the ruling could cost the sector 60 billion zlotys ($15bn), as more borrowers seek favourable conversions. The Warsaw Stock Exchange’s banking index continues to plunge.

Economist Witold Orlowski warned that a sudden revaluation of assets would erode profits and may lead to capital raises. For the most affected banks – Millennium, mBank and Getin Noble – their foreign currency loan portfolios are larger than their tier one capital.

If just one of the banks with the largest Swiss franc portfolios were to come near bankruptcy, interbank lending would dry up, hurting the wider economy. Banks would likely balance the losses with higher interest and fees – hitting all customers.

Hoping to capitalise on the judgement before the October 13 parliamentary election, the opposition has criticised government inaction. While Hungary, Romania and Croatia all faced similar issues, they were much faster to resolve them.

Grzegorz Schetyna, leader of the centrist opposition, told reporters “the judgement is about a bank chief, once of Santander bank, [who is] today prime minister. It is a judgment about Morawiecki [Poland’s prime minister], because his bank was one of those who aggressively and optimistically gave out Swiss franc loans.”

Still, Polish home buyer cases will be assessed one by one, and only once they are brought to court. At the current pace of the Polish judicial system, meaningful resolution could take years.