PRIMER: ECJ Mortgage decision re. Poland due Thursday, 16th February 2022 from circa. 08:30GMT onwards.

Analysis details (14:55)

• The European Court of Justice (ECJ) is set to issue a provisional opinion relating to, among other points, whether Polish banks can charge their clients interest on CHF mortgages which were invalidated by local courts due to so-called abusive clauses; with the alternative potentially being that banks have to cover the CHF-related costs themselves. To be clear, the February announcement is an opinion from the court and will be followed by a formal decision at some point in 2023. S&P Global writes that given the ECJ’s “strong pro-consumer approach, the chance of banks being allowed to charge interest generated on mortgages before they were invalidated is very small”. The article writes that Bank Millenium which is owned by Banco Comercial Portugues (BCP PL), Commerzbank’s (CBK GY) mBank and BNP Paribas’ (BNP FP) Bank Polska have the highest percentage of CHF mortgage in their portfolios.


• The decision is in reference to mortgages sold within Poland around the year 2000, mortgages which clients were advised to take out in CHF in order to benefit from lower rates. Mortgage holders subsequently claimed that the mortgages were sold with abusive clauses as they were not cautioned on the currency risk and what would happen if, as it did, the CHF appreciated. Domestically, mortgage holders have been winning cases which force the banks behind the mortgage to cover the FX cost.


• If the ECJ opinion and subsequent ruling are clear, then it has the potential to force Polish banks to cover the CHF-related costs of the mortgages, which the Polish Financial Watchdog (KNF) has cautioned could lead to the collapse of “at least one or two” banks. Note, in September 2022 the Polish gov’t was forced to bail out Getin Noble for PLN 10.3bln due to CHF-related mortgage lending costs. Outside of Poland, Banco Commercial Portugues’ polish unit required a financial recovery programme due to its exposure. On the flip side, ING writes that a non-conclusive ECJ ruling would be regarded as a positive for domestic banks and by extension the PLN, arguing that the systemic risk of the CHF mortgages explains recent PLN underperformance vs CEE peers.
  


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  On the consequences of a ruling, KNF wrote in October 2022 that it has the potential to generate a one-off hit of PLN 100bln for lenders, or circa. 50% of own-funds commercial banks hold, which has the potential to cause bankruptcies or even collapse the domestic financial system. On provisions, S&P Global writes that legal risk provisions associated with thin at publicly traded banks amount to PLN 30bln and another PLN 27-50bln would be required to entirely eliminate the legal risk


• Note, there are separate ECJ cases underway in relation to Poland and alleged violations of EU law by its constitutions courts (i.e. the rule of law case(s)), which are not to be confused with the above ruling but is also perhaps another potential headwind against the PLN.

15 Feb 2023 - 14:55- EquitiesImportant- Source: newsquawk