If you thought the Swiss were getting tetchy about the strength of the Swiss Franc, note the following headline from the business section of Poland’s top internet portal Onet.pl on Thursday:
Translation: “How to lower the rate on your Swiss-franc mortgage”.
Curiously, the advice dispensed actually suggests not doing anything at all. Mostly because you’ll only end up locking-in your losses.
Some financial pundits, meanwhile, have even been recommending doubling up on Swiss-franc exposure on the basis that they can’t imagine the franc getting any stronger.
One look at PLNCHF gives readers a good indication of the pain. Since coming off in 2009, the cross-rate has failed to reach anywhere near the level needed to mark the mortgages as above water.
This means — even though the issue of CEE Swiss-franc and euro-denominated mortgages first hit international headlines in early 2009 — there has been little incentive for Poles to convert or pay-off their mostly 20-year plus agreements.
This has seen the number of FX-mortgages out there stay pretty constant.
The Swiss franc’s fresh highs against the zloty, meanwhile, arguably makes it an even worse situation than back in 2009.
Looking at the figures from BNP Paribas’ CEEMEA team, approximately 41.8 per cent of mortgages in Poland were denominated in foreign currencies in 2009. In March this year that figure still stood at 36.8 per cent.
In Hungary it’s notably worse. At their peak in March 2009, FX mortgages accounted for some 74.2 per cent of the market. Today the figure still stands at 69.9 per cent.
Bartosz Pawlowski, head of FX & IR CEEMEA strategy at BNP Paribas, says we’ve arrived at a situation where the Swiss National Bank’s decisions are arguably more important to Poland than those of its own central bank, the National Bank of Poland (NBP).
“Poland is at the mercy of the Swiss,” Pawlowski told FT Alphaville. “It’s more relevant now what the SNB does than the NBP.”
In a perverse way, he adds, the NBP hiking rates could even be interpreted as easing: “If the NBP hikes and the currency strengthens this would help anyone with a Swiss-franc mortgage.”
But with inflation slowing, there’s currently no expectation of that.
There is one saving grace for Poland. As yet, non-performing loans have not been rising.
“Poles have proved to be very well disciplined when it comes to paying off their mortgages,” says Pawlowski. “The problem is they won’t have much money left to spend on other things.”
None of which bodes well for future Polish growth. But that, as they say, is another story.
Nearer term, there is, if anything, a funding issue for banks, since the majority of institutions chose to fund their Swiss franc positions on a short-term basis — a fact which could see some scrambling for funding in hard currencies sometime soon, says Pawlowski.
Related links:
Forex failure begins in Poland – FT Alphaville
Fitch worried about Polish corporate FX exposure – FT Alphaville
Domino theory, Eastern European edition - FT Alphaville
Measuring Italian-ski exposure - FT Alphaville