The Court of Justice of the European Union (CJEU) ruled on June 15 that Polish holders of foreign currency-denominated mortgages can seek compensation from banks if their mortgage deals are unfair and thus ruled invalid.
Banks, in turn, cannot push for charging borrowers for the cost of capital in those cases, the CJEU said in the ruling, which is in line with an earlier opinion of the court’s adviser and was expected.
“EU law does not preclude, in the event of the annulment of a mortgage loan agreement vitiated by unfair terms, the consumers from seeking compensation from the bank going beyond reimbursement of the monthly instalments paid,” the CJEU said.
“By contrast, it precludes the bank from relying on similar claims against consumers,” it also said.
The ruling hands Poland’s banks a defeat in their quest to neutralise an avalanche of lawsuits by borrowers claiming that the CHF-denominated mortgages handed out by lenders in the mid-00s were unfair and should be cancelled.
The ruling initially sent Polish bank stocks sharply down on the Warsaw Stock Exchange, with the sectorial index WIG-banki down 2.44%. The index recovered later in the day, eventually gaining 0.6% as trading closed.
“The judgment leads to a situation in which some bank customers will get a free loan. This is an extreme and unfair privilege [given to] one group of borrowers,” the head of the Polish Banks’ Association (ZBP) Tadeusz Bialek told a press conference.
Polish bankers also say that the ruling could impair lenders’ ability to credit and therefore hurt the economy.
The CJEU’s ruling could costs Polish banks PLN100bn (€21bn), an analysis by the financial market watchdog KNF showed in late 2022.
But analysts say that the sector will be able to stomach the ruling’s consequences without much trouble.
Polish banks made a net profit of over PLN12bn in 2022 – doubling the net result compared to 2021 – on the back of increased interest rates, which the National Bank of Poland hiked to 6.75% to fight inflation. Any costs that the banks might now incur in the wake of the CJEU ruling will be spread over time, given that the the borrowers need to either take their cases to court or go for an out-of-court settlement.
The Polish banks have had a longstanding problem with hundreds of thousands of mortgages denominated in foreign currencies, primarily the Swiss franc. The FX mortgage portfolio is worth an estimated PLN86bn.
Polish lenders face thousands of lawsuits over the CHF-denominated mortgages, which they granted when the franc was at an all-time low against the Polish zloty. Courts have so far sided with the claimants in an overwhelming majority of cases
At a time of a massive property boom in Poland, banks and financial intermediaries highlighted the attractiveness of the loans’ lower repayments to customers who could not afford them in zlotys.
The borrowers have long said now that the banks lured them into the mortgages by not highlighting the currency risk enough and using a number of so-called abusive clauses, for example in calculating their CHF-PLN spread.
When the Swiss central bank unpegged the franc from the euro in January 2015, the zloty weakened considerably nearly overnight, causing the repayments to skyrocket. The Swiss National Bank’s recent raising of its policy rate from 0.25% to 1.5% only added to the borrowers’ woes.
The franc today is still worth well over twice as much in zloty terms than it was during the heyday of the CHF-denominated mortgage market.
Not only do borrowers have to pay much bigger repayments, but the loan-to-value of their properties has worsened, making it difficult for them to move property.
