CHF credits – will the franc exchange rate go up?

Is this a good time to take action to free yourself from pseudo-franc mortgages?

Unfortunately, everything indicates that the economic effects of the current coronavirus epidemic will be very severe for all of us. The economic slowdown is a fact and more and more people talk about a possible recession. On Tuesday (17 March), the central state authorities tried to take remedial actions. The Monetary Policy Council decided to reduce interest rates; on Wednesday (18 March) the government presented its Anti-Crisis Package, and since yesterday (19 March), as announced by the President of Narodowy Bank Polski, this body started buying Polish bonds as part of structural operations.

Let us therefore focus on what current actions regarding monetary policy mean. The first reduction of interest rate after a five-year break became a fact. The Monetary Policy Council has cut the reference rate by 50 basis points to 1%, which is the lowest in history. The amount of interest rates translates into the interest rate on loans taken out and deposits placed with banks. In short, credit will be cheaper (and our savings will have lower interest rates) – which is expected to encourage investors and to a recovery in economic demand. Indeed, all those borrowers who have contracted a liability in PLN at a variable interest rate should benefit from the reduction in interest rates (they should, as they will probably have to wait a little longer for the banks to respond). Unfortunately, this situation does not apply to borrowers with liabilities incurred in a foreign currency, where the interest rate is indexed to indices other than WIBOR. The reduction in interest rates will therefore not have a direct impact on the amount of instalments to be paid in foreign currency. But indirect impact – by influencing the exchange rate of the zloty – is very possible.

The situation on the money market and its impact on the zloty’s exchange rate should also be related to the policy adopted by the NBP, which yesterday (19 March) offered to buy back treasury bonds for PLN 10 billion in an unconditional tender. Only yesterday, it was possible to buy back the securities for PLN 2.66 billion. In addition, the Management Board of NBP announced the launch of extraordinary instruments, not yet used in the Polish monetary policy. The message from these actions is therefore clear and legible: cheap credit, mass redemption of bonds, extraordinary liquidity supply for banks – we are trying to pump money into the economy.

Apart from evaluating the actions taken, it should be borne in mind that we are dealing with pumping “empty money.” This trend is global; due to the coronavirus situation, a number of central banks (including the FED and the ECB) are intervening. However, it is necessary to take into consideration how the country is prepared for a possible recession. Here, Poland’s situation is much less optimistic – we have a high public debt, the service of which is very expensive (about PLN 30 billion a year is spent on paying interest on the debts that are still being incurred). Having in mind this and a highly developed social policy, the risk of falling into an exaggerated interventionism, which can have the opposite effect to the desired one, is possible. As you can easily guess, poor economic performance, such as shrinking GDP or rising inflation, would also have a disastrous impact on the strength of the zloty in the currency market.

Is this a good time to take action to free yourself from pseudo-franc mortgages?

Definitely yes, and these measures should be considered as a long-term investment. Court proceedings related to the cancellation of an agreement or the restructure credits denominated in CHF are generally lengthy and complicated, although it happens that some banks, seeing the gravity of the situation, make settlements with customers. Our Law Firm takes a very individual approach to handling each of the cases entrusted to us, which allows us to maximise the accuracy of the legal arguments raised during the proceedings. It seems that the current crisis situation may also have a positive impact on the case law in franc-related cases, as it clearly shows what the currency risk of this product is – a risk about which, contrary to the imposed obligation, banks most often did not inform their clients at all.

Looking at the PLN/EHF exchange rate for the time being, we can observe that since the beginning of March, the average NBP exchange rate of the franc has increased strongly (by almost 9%) – from about PLN 4.00 to PLN 4.35 today. It is worrying that the strong weakening of the zloty has been recorded continuously since the day of the announcement of the epidemic risk – on 13 March it was just PLN 4.15. The impact of the situation caused by the epidemic in the country on the zloty’s exchange rate is therefore clear. If we juxtapose this with the truth that has been known for a long time – that franc has always been more popular in times of crisis, we should rather assume that the observed trend will continue.


Mariusz Maksis, attorney-at-law