Polish president's aide calls on banks to voluntarily convert forex loans

By Marcin Goclowski and Pawel Sobczak

WARSAW (Reuters) - Polish banks should voluntarily offer to convert Swiss franc-denominated mortgages into zloty at a rate they agree on with clients to avoid the president proposing a compulsory re-denomination, presidential adviser Marek Dietl said.

Banks are at odds with the new government run by the conservative Law and Justice (PiS) party, as PiS wants them to bear the loan-conversion costs on top of a newly imposed bank tax.

The financial regulator projects that enforced loan conversion, together with forcing banks to compensate borrowers for mortgage-repayment exchange rates deemed excessive, could cost lenders up to 67 billion zloty (11.5 billion pounds). For years, borrowers could only buy foreign currency to repay their loans from their own banks, who often sold it at a high price.

Lenders say forced loan conversions, returning excessive exchange-rate spreads and other ideas floated such as allowing mortgage holders to hand their property keys over to the bank and walk away from the related debt, could put the whole sector in the red.

They have instead offered to create an 800 million zloty fund to support troubled home-owners. But this has disappointed home owners, who backed PiS in the 2015 election after it promised full conversion of their mortgages at historical rates.

"It would be good if banks resolve this problem on their own. They should engage in negotiations with clients and propose re-denomination. The president would then not be forced to present his proposal," Dietl told Reuters.

"If banks submit such an offer, one could drop the ideas of returning home keys or claiming spreads," added Dietl, who advises President Andrzej Duda on economic matters.

Swiss-franc mortgages have been among the most reliably repaid loans in Poland. But the surge in the value of the franc since last January, when the Swiss central bank abandoned its policy of capping the currency, has made instalments much harder to repay for more than half a million Poles who took out loans in foreign currencies, mostly a decade ago.

In Hungary, where home owners had been struggling with foreign currency mortgage repayments much earlier than in Poland, the government eliminated billions of euros worth of Swiss franc-denominated mortgages in steps culminating in a massive conversion into forints just before the SNB lifted its cap. The fortuitous timing of the move likely averted a financial crisis and removed a big risk factor hanging over Hungary's economy.

Poland's banking sector is 60 percent owned by foreign lenders, with Santander, Commerzbank, BCP, BNP Paribas, and Raiffeisen running local units with Swiss franc mortgage portfolios.

Dietl said the banks' solution should envisage a cap on increases in instalments and possibly extending the loans' due date by up to five years.

This could cost banks 14-18 billion zlotys and shield borrowers from instantly bearing the full cost of a possible rise in interest rates, he said.

President Duda's January proposal to convert the mortgages into zlotys at below-market rates was criticised by both the financial regulator KNF and the central bank. The president's office is currently working on an update.

"The solutions that will be presented will be multilayered and cover all aspects of the issue," Dietl said, adding that Duda will receive written-up proposals in June.

(Writing by Marcin Goclowski; Editing by Hugh Lawson)