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Poland: Swiss Franc loans come back to bite


peterweg 36 | 2,316
17 Oct 2013  #1
Summary: If you have a Swiss Franc loan; tough **** you can't get out of it.

blogs.ft.com/beyond-brics/2013/10/15/poland-swiss-franc-loans-come-back-to-bite/
Harry
17 Oct 2013  #2
Yes, but the article also makes this very valid point:
Most Polish borrowers are still ahead because their monthly payments have been lower over the life of the loan than if they had borrowed in zlotys. Only 1.4% are in arrears, compared to 4.4% for zloty loans.
OP peterweg 36 | 2,316
17 Oct 2013  #3
And I suspect that the CHF will fall considerably in two to three years, making the mortgages a bargain once again.
Wroclaw Boy
13 Jan 2014  #4
Banks are generally unpopular in Hungary after encouraging hundreds of thousands of households to take out foreign currency mortgages that were relatively cheap before the 2008 financial crisis, but have become very expensive as the forint's value has fallen, reports Reuters.

euronews.com/2014/01/13/bomb-damages-budapest-bank-branch-no-one-hurt/
Norwegian 5 | 56
20 Jan 2014  #5
Very intresting raport: warsawvoice.pl/WVpage/pages/article.php/27044/news

I am looking for the whole story, but clifnotes here is that:

- If the CHF loans had to be converted to PLN today, the polish banksector would be facing a 44.4bln pln loss!

- That loss would wipe out the legal capital necessary for running 2-3 banks in Poland.

Holy S#¤%, I hope we will see a drop in the CHF (as predicted by the french bank Credit agricole: before someone is realy going trough the loanportefolio for our bellowed polish banks!

A forced covertion (dont know from where that could come from, but take it as a technical experiment) would put Poland 5 years back - Give it a 1% chanse and a lot of investors have to redraw there risk picture of the polish market.

GL
Polonius3 1,000 | 12,449
7 Jun 2015  #6
Merged: Swiss Franc debtors to stand for Sejm

Rzepa has reported that Poles who took credit in swiss francs are organising and plan to stand for election to the Sejm in autumn. It reported Tomasz Sadlik, head of the Association in Defence of Bank Victims Pro Futuris as saying. "If the banks can set up the ModernityPL then debtors must have their reps in different parties and ideally set up a grouping of their own."

The "frankowicze",a s they have been dubbed by the media, want to repay their debt according to the exchange rate in force when they took out the loans.
weeg
7 Jun 2015  #7
want to repay their debt according to the exhcnage rate in force when they took out the loans.

Didn't they have that option when they took out the loan, by taking a loan in local currency and paying local interest rates?
Wroclaw Boy
7 Jun 2015  #8
Didn't they have that option when they took out the loan

Thats besides the point Weg, there was a very good reason as to why something like 95% of mortgages within a 2 years or so period were provided in CHF (Swiss Francs) and it has everything to do with low interest rates at the time. Your stance is one of "their mistake fcuk em". Don't you have any empathy and/or compassion for your fellow human?

Thats like saying Mr X bought a car for £2000 but Mr Z bought the same car for £3000, Mr X's car broke down, and then some prick like you comes along and says it was cheaper because it had a hidden engine problem and that its totally Mr X's fault for trying to buy a cheap car. Fcuking idiot.

These people are lumbering in critical debt as a result of negative equity and unfair fluctuating currency rates.
Polsyr 6 | 769
7 Jun 2015  #9
Keeping emotions aside, banks are not charities. They will eat you alive if you try to rip them off, and they have the power to do so because they are protected by several layers of law and have the money to fuel their legal battles.

That being said, so many laws would have to be broken for this to happen (i.e. for banks to charge exchange rate at time of mortgage signing). No single institution in the gov of Poland has the power to force banks to accept this. Not even the supreme court of Poland can force banks to accept this because there are additional layers of EU and even international law protecting banks as well.

However, PiS have been using this false promise as a part of their election campaign, which is something they already know they can't do. They are taking advantage of people's ignorance and desperation.

The comparison with automobiles is illogical. When you sign up for a loan in a currency that you don't earn, you are accepting the risk associated with changes in the exchange rate - and signing a paper that says you are aware of this risk and accept it. Unlike a broken automobile (new cars have a warranty don't they?) the change in exchange rate is not a fault in the product or service being sold, it is an integral part of the actual product in this case - which is a foreign currency loan.
Wroclaw Boy
7 Jun 2015  #10
banks are not charities.

No business is a charity, even charities are not charities anymore, if they were their ultimate objective would be to not exist. Cancer UK has some of the most aggressive 'charity raising tactics' ive ever known. They make you think youre going to die an agonising death and then ask you for £10 every month. The last thing Cancer UK wants is a cure for cancer.

The comparison with automobiles is illogical.

They both carry the underlying reason for the use of service and that is to save money, which is the basic basis for all trade, i.e for somebody to achieve a service at the lowest possible price. Could a shady car dealer mask a damaged engine, forge documents, spray a damaged car........ in the name of profit? of course he could. Would bankers from Poland and Switzerland get together behind closed doors during a property boom and introduce a mortgage knowing that 95% of mortgage applicants are going to take it based on ignorance and attractive interest rates....only to increase them later knowing full well that the customers would not have a leg to stand on...Of course they could.

Both comparisons are business trades, organised on the basis of profit motivation, they are essentially the same, it is your interpretation that is the problem here.

Im sure you're aware of the LIBOR scandal in the UK, Barclays bank high flyers were fixing the exchange rates and making billions along the process, this is financial corruption of the highest level. I say again, could Swiss banks have set this whole thing up from the beginning. I mean a Euro mortgage sure, a GBP one too as hundreds of thousands of Poles earn in Euros and GBP, but ******* Swiss Francs, how many Poles do you know who work in Switzerland? They're not even EU.

The Polish banks and other lending institutions offered mortgages in GBP, EUR, CHF and PLN but more or less everybody took a CHF as the interest rate was about 2% lower.

People didn't know what they were singing up for, they just wanted to get on the property ladder, it was also a relatively new mortgage market. This is classic rich robbing for the poor...plain and simple.

Could mortgage advisors and brokers persuade clients to take Swiss Franc mortgages based on higher commission arrangements. Come on Polsyr, this is precisely why capitalism is not working.

They will eat you alive if you try to rip them off, and they have the power to do so

If you own them £10000 you have a problem, owe them £10,000,000,000 and they have a problem. The CHF situation is actually quite similar to the sub prime mortgage crises of Fredy Mac and Fanny May back in 2008 which had the potential to kill of the monetary system as we know it. banks were deemed as too big to fail and the rest is history.
Polsyr 6 | 769
7 Jun 2015  #11
Wroclaw Boy;

You are right about something, people didn't know. Whose fault is that? (genuine question) The people who thought they were being smart or the brokers that took advantage of people's stupidity? Or maybe the administration that allowed it all to happen?

I agree that mortgage advisors tricked people into these arrangements. One of my family members was a mortgage broker and sold dozens of CHF loans and even took one for his own home. He is now feeling the error of his old ways.

Regardless of all the above, in the eyes of the law, the person who signed the contract taking the risk is responsible. Unless you can prove that there was a specific conspiracy to set people up and crash the exchange rate a few years later (I can't see how that would benefit anyone).

Finally, a car and a bank loan are very different types of products. I will get back to you with more soon, and I appreciate all you have said.
Wroclaw Boy
7 Jun 2015  #12
Unless you can prove that there was a specific conspiracy to set people up and crash the exchange rate a few years later (I can't see how that would benefit anyone)

The financiers of the funds behind the Swiss Franc loans would benefit, the banks would take their slice, and of course the brokers. Basically 100's of thousands of people (consumers) will suffer and a handful of already filthy rich people will become even more wealthy.

In terms of proof you've probably got more chance of proving 911 was an inside job.

Whose fault is that?

Its capitalisms fault, the social system that governs society at its very core.

The invention of money to replace the barter system thousands of years ago was a great invention, what it has become today is truly terrifying.

a car and a bank loan are very different types of products.

Im aware of that, but the reasons for their existence in a monetary based society are exactly the same.......its essentially trade for profit.
weeg
7 Jun 2015  #13
Communism's boat has sailed, WB. People want the freedom of choice to make their own mistakes.
Wroclaw Boy
7 Jun 2015  #14
People want the freedom of choice to make their own mistakes.

Humm yes, they truly want to allow themselves to get shafted / conned by the super rich capitalist class. You telling me the bankers didn't know exactly what they were doing?

Communism's boat has sailed, WB

This isn't about capitalism vs communism, it has more in common with basic decency, to enable people to buy properties with an affordable no surprises later on home loan.
Crow 137 | 7,520
7 Jun 2015  #15
Same is in Serbia. When journalists asked Ivica Dacic (back then PM, today president of OEBS) what he thinks about credit loans in Swiss Francs, about people who lost their jobs, greatest in Europe mortality rate due to heart attacks, Serbian European record in fatal cancers, etc, etc things, Dacis answered- ``well, you know, Serbs wanted capitalism.``
weeg
8 Jun 2015  #16
enable people to buy properties with an affordable no surprises later on home loan.

Again, it was a free choice, they made, to choose risk over security. Should they have been given this choice?
Probably not, as they as obviously too stupid to be given that decision.

The State should decide who got these mortgages, hence the comparison with communism
jon357 63 | 14,110
8 Jun 2015  #17
Absolutely. There were those who advised against it at the time but people chose to ignore that advice in order to get a larger mortgage than they would normally have access to.

The short length of many Polish mortgages is an exacerbating factor, especially when our German neighbours often have very long ones. One sensible solution could be to add a decade or so to each, however those with the mortgages seem to expect their mistake to be sorted at the cost of others rather than themselves.
Polsyr 6 | 769
8 Jun 2015  #18
Exactly jon357, at the expense of others. That is the worst part.
bullfrog 6 | 603
8 Jun 2015  #19
Again, it was a free choice, they made, to choose risk over security. Should they have been given this choice?

You're right, and the implications of this are far reaching. Event the UK market can be criticized for exactly the same reasons, ie making the client reimbursements fluctuate depending on a parameter over which average Joe has no say whatsoever, in this case interest rates, since in the UK most mortgages are variable (or fixed for a short period).

Shouldn't it be the role of banks precisely to take this risk on board and manage it? That's what happens for example in the French market, where the vast majority of mortgages are fixed over the entire maturity of the loan, ie 15, 20,25 years whatever that might be ==> Repayments are fixed over the entire duration of the loan, whatever happens to interest rates.
Niko
8 Jun 2015  #20
And I suspect that the CHF will fall considerably in two to three years, making the mortgages a bargain once again.

Good one! :D
bullfrog 6 | 603
9 Jun 2015  #21
Indeed. Let's not forget that for most CHF mortgage holders, the bulk of the negative impact is felt through negative equity attached to their property. That is an "unrealised" loss that could vary and even disappear if the exchange rate improves before they dispose of the property. It is true that there is also an impact on monthly instalments which are higher expressed in PLN, but this is at least partially offset by the low interest rates on CHF. Some mortgage holders are today not even paying any interest (eg those with a CHF LIBOR 3 months index and a margin below 80bp, since CHF 3m LIBOR is currently at -80 bp).
jon357 63 | 14,110
9 Jun 2015  #22
if the exchange rate improves

And if the exchange rate for CHF had gone the other way, not even one of the CHF mortgagees would be lobbying for the money to be given back.
Wroclaw Boy
12 Jun 2015  #24
Again, it was a free choice, they made, to choose risk over security. Should they have been given this choice?
Probably not, as they as obviously too stupid to be given that decision.

They weren't fully aware of the risks. Nice choice.....which bank gets to enslave the home owner more? humm lovely jubbily choice. Its not stupidity Weg, its ignorance with a little bit of blackmail.

And if the exchange rate for CHF had gone the other way, not even one of the CHF mortgagees would be lobbying for the money to be given back.

Perhaps, shame that around 90% are not though, would you be surprised if the FX rate was artificially inflated to coincide with the Polish property boom? because thats precisely what happened.

Let's not forget that for most CHF mortgage holders, the bulk of the negative impact is felt through negative equity attached to their property.

That all sounds rather rosey but the reality is some what different. In my experience (and I have more than most), around 70% of people who bought a Polish property between mid 2007 and late 2008 in a CHF mortgage have seen their mortgage repayments significantly increase and in some cases even double. All properties bought between that time frame have lost around 20% of their value, so if mortgage repayments have increased and property prices decreased and if you sell you need to pay the loan back in CHF, it puts the owner in crippling debt with no way out. If they sell the property they will still be at a loss even in PLN add in the CHF factor and it virtually doubles whats owed to the bank.

but this is at least partially offset by the low interest rates on CHF

Would you mind giving me an example of that? i don't think you're getting this. The only interest rate which doesn't fluctuate is that which exists between the PLN and CHF at the time of signing, it used to be around 1.5 - 2.0%
cms 9 | 1,272
13 Jun 2015  #25
wroclaw boy, the average interest rate on świss francs was 1.10 percent during the last 15 years. In Polish zloty the average interest rate was 6.5 percent over the same period.

And no I don't think these things are arranged by "the capitalist class" on the golf course.
weeg
13 Jun 2015  #26
Their isnt enough money in any currency (except the dollar) to manipulate the exchange rate. The UK tried it.

The Swiss tried it and they gave up. Many 'capitalists' bet their lives on the fixed rate and lost fortunes.
jon357 63 | 14,110
13 Jun 2015  #27
Perhaps, shame that around 90% are not though, would you be surprised if the FX rate was artificially inflated to coincide with the Polish property boom? because thats precisely what happened.

The Polish government and the banks couldn't do that even if they tried.

The Swiss tried it and they gave up. Many 'capitalists' bet their lives on the fixed rate and lost fortunes.

Precisely.
Wroclaw Boy
13 Jun 2015  #28
wroclaw boy, the average interest rate on świss francs was 1.10 percent during the last 15 years. In Polish zloty the average interest rate was 6.5 percent over the same period.

I meant the interest rate between which the Polish banks borrowed CHF at, I know its confusing, but x amount of billion CHF borrowed at 1.50 - 2.00 %. The national interest rates on PLN or CHF is irrelevant in this case, this is where the real sting lies.

Governments have been artificially inflating/deflating FX rates for decades. But honestly i don't think thats the case here, there simply wouldn't be enough profit in mortgages alone. No, its probably more an opportunity issue, as in the hedge fund managers, saw an unusually strong PLN in contrast to an unusually weak CHF and set the deal up knowing that the FX rate would swing the other way.

Their isnt enough money in any currency (except the dollar) to manipulate the exchange rate.

The Libor scandal was a series of fraudulent actions connected to the Libor (London Interbank Offered Rate) and also the resulting investigation and reaction. The Libor is an average interest rate calculated through submissions of interest rates by major banks in London.

Libor underpins approximately $350 trillion in derivatives.

Sorry what were you saying Weg? Whats the amount got to do with it anyway? Thats irrelevant.

I would post a link to the above content but although we are trying to shed light on the CHF POLISH related mortgage scandal, non POLISH RELATED links will be broken.

The Polish government and the banks couldn't do that even if they tried.

Banks do what ever the hell they want.

On 27 July 2012, the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991.[8] Further reports on this have since come from the BBC[9][10] and Reuters.[11] On 28 November 2012, the Finance Committee of the Bundestag held a hearing to learn more about the issue.[12]

Sorry, non Polish related links will be broken.
non-clickable although still usable
bullfrog 6 | 603
20 Jun 2015  #29
Would you mind giving me an example of that? i don't think you're getting this

With pleasure. I have a CHF mortgage on a property in Warsaw which is priced at LIBOR + 70 bp. Given the current levels of 3M CHF LIBOR (around - 70 bp) , I have not been paying any interest for the past 6 months.
Wroclaw Boy
20 Jun 2015  #30
Did you take that loan in 2005?

You can clearly see the stitch up period of 2007 - 2008, which ive highlighted in this graph, nicely coinciding with the tail end of the Polish property bubble.


  • CHF LIBOR


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