Polish banks are sounding increasingly sanguine about a looming European Union court ruling that the country’s financial regulator once warned may spell a full-blown crisis for the industry.
(Bloomberg) — Polish banks are sounding increasingly sanguine about a looming European Union court ruling that the country’s financial regulator once warned may spell a full-blown crisis for the industry.
In the latest chapter of the saga centered around $17 billion of mainly Swiss franc-denominated loans, EU judges are set to rule whether banks can sue clients, who got their mortgage contracts canceled in courts — a way for the industry to recover some losses and deter future litigation.
Left without such an option, multiple banks could face bankruptcy with provisions rising as much as four-fold to 100 billion zloty ($22.5 billion) under the worst-case scenario, the head of Poland’s financial regulator said in October.
Despite the warnings, banking stocks are rallying ahead of a non-binding opinion in the case, which the EU’s top court will publish on Feb. 16. Polish bankers are also playing down the risk, with MBank SA Chief Executive Officer Cezary Stypulkowski joining the fray on Thursday.
“It’s difficult to predict in what direction the opinion will go, but I’m relatively optimistic here,” he told a conference call with reporters after the Commerzbank AG unit published upbeat fourth-quarter results.
Last week, Bank Millennium SA’s Chief Financial Officer Fernando Bicho said: “Provisions for legal risks for 2023 should be lower than in 2022.” Even if the verdict forces the Banco Commercial Portugues SA unit to adjust write-offs, it “will not jeopardize yearly results,” he said.
Millennium, the party in the dispute before the EU court, has been pushing for out-of-court settlements with clients, offering to switch loans to zloty. It said the saga “is coming to an end.” Banks reduced their foreign-currency loan portfolios by 22 billion zloty last year.
A final verdict by the Luxembourg-based tribunal is expected later in the year.
Bank Rally
Santander Bank Polska SA executives echoed the sentiment during their earnings call on Feb. 2, saying that any potential provision adjustments would come after the EU court final verdict. Less-exposed ING Bank Slaski SA and Bank Handlowy SA don’t expect to be materially impacted, either.
Investors are also upbeat on lenders, helped by strong earnings. Warsaw’s WIG-Bank index advances 10% this year, outperforming the WIG20 gauge and emerging-market peers. The banking gauge has surged 50% from last year’s low.
Polish courts have overwhelmingly ruled in favor of consumers after finding that many Swiss franc loan contracts included so-called “abusive” clauses, allowing lenders to set foreign exchange rates arbitrarily. Banks countersued their clients, meanwhile, demanding compensation for lost interest income on the capital provided in the original loan.
Santander analyst Kamil Stolarski said lenders can withstand a negative ruling scenario as high interest rates fuel record industry profits. An ambiguous verdict, on the other hand, may trigger more gains as current valuation still don’t fully reflect earnings prospects, he said.
Fitch Ratings Ltd will assess the impact from the ruling after individual banks decide on their provisioning, Artur Szeski, its director for financial institutions in Warsaw said in an interview last week. He expects lenders to gradually increase their provisions to 70%-90% of gross outstanding non-zloty loan portfolios from about 40% now, with the ruling potentially impacting the pace of write-offs.
–With assistance from Maciej Martewicz.
(Updates with MBank’s CEO comment from paragraph four; share moves)
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