Opinion of the European Central Bank of 5 August 2015 on a draft law on specific terms of restructuring of home loans denominated in foreign currency (CON/2015/26)
Date: 2015-08-05
Institutions: European Central Bank
Subjects: Poland, banking supervision, consumer, debt, financial stability, foreign currency, national law, real estate credit

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 5 August 2015 

on a draft law on specific terms of restructuring of home loans denominated in foreign currency 

(CON/2015/26) 

Introduction and legal basis 

On 23 July 2015 the European Central Bank (ECB) received a request from the Polish Parliament for an 

opinion  on  a  draft  law  setting  specific  terms  for  the  restructuring  of  housing  loans  denominated  in  a 

foreign currency and amending certain other Acts (hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC 1, as 

the  draft  law  contains  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the 

stability  of  financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of  the 

Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1  The purpose of the draft law is to facilitate the restructuring of home loans denominated in a foreign 

currency (hereinafter ‘foreign currency home loans’) that were granted before the date of entry into 

force of the draft law. In particular, banks will be required, on the request of an eligible borrower, to 

restructure foreign currency home loans, in accordance with the terms set out in the draft law, until 

30 June 2020.  

1.2  Under the draft law, borrowers who are consumers will be eligible to request a  restructuring of their 

foreign currency home loans, provided that: a) the property is used by the borrowers to satisfy their 

own housing needs; b) the borrowers own no other residential unit nor single family house; c) the 

usable  area  of  the  property  does  not  exceed  75  square  metres  in  respect  of  a  residential  unit  or 

100 square meters in respect of a single family  house (unless at the date  of filing a  restructuring 

request the borrower is raising three or more children, in which case no square meter limit applies); 

and d) the loan to value (LTV) ratio of the foreign currency home loan is above 80%. 

1.3  The  draft  law  provides  that  the  restructuring  request  may  be  filed  at  different  points  of  time 

depending  on  the  LTV  ratio.  It  may  be  filed  as  soon  as  the  draft  law  comes  into  force  where  the 

value of the LTV ratio is above 120%, no sooner than one year after the draft law comes into force 

where the LTV ratio is above 100% but equal to or lower than 120%, and no sooner than two years 

after the draft law comes into force where the  LTV ratio  is above 80% but equal to or lower than 

100%. 

1  

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
                                                      
ECB-PUBLIC 

1.4  The draft law provides that, once the borrower exercises the right to restructure a home loan, the 

borrower’s new obligation towards the bank will be the total of the following three components: 

(i)  

First, the principal amount of the home loan, denominated in zloty (PLN), which would have 

remained payable on the date of filing the restructuring request had the borrower concluded, 

with the same bank, a home loan denominated in PLN with identical loan payment terms on 

the date he or she concluded the foreign currency home loan which is being restructured;   

(ii)   Second,  the  difference  between:  a)  the  remaining  principal  amount  of  the  foreign  currency 

home loan which is being restructured, converted into PLN at the buying exchange rate for 

the relevant currency  published  by  Narodowy  Bank Polski (NBP) on the day  preceding the 

borrower’s  restructuring  request;  and  b)  the  amount  represented  by  the  first  component  in 

point i) above. If, based on such calculation, the resulting amount has a positive value, the 

bank  will  be  required  to  redeem  half  of  the  amount.  The  non-redeemed  half  will  form  the 

second component of the borrower’s new obligation to the bank;  

(iii)   Finally,  the  difference  between  two  further  amounts.  First,  the  amount  equal  to  the  total 

principal and interest payments which the borrower would have made up to the date of filing 

the  restructuring  request,  had  the  borrower  concluded,  with  the  same  bank,  a  home  loan 

denominated in PLN with identical loan payment terms on the date he or she concluded the 

foreign  currency  home  loan  which  is  being  restructured.  In  calculating  this  amount,  an 

interest rate  based on the  Warsaw Interbank Offered Rate  base rate on the relevant dates 

will  be  applied,  in  line  with  the  specific  time  period  for  the  Euro  Interbank  Offered 

Rate/London  Interbank  Offered  Rate  base  rate  applied  in  the  contract  for  the  foreign 

currency home loan. It will be assumed that the bank’s margin would have been equal to that 

set in the relevant contract concluded by the borrower. If the contract provides for changes to 

the interest rate at the discretion of the bank’s management, the interest rate will be applied 

according to the terms stipulated in the relevant contract. Second, the amount representing, 

in  PLN,  the  total  principal  and  interest  payments  which  the  borrower  has  made  under  the 

foreign currency home loan up to the date of filing the restructuring request. The conversion 

to  PLN  will  be  based  on  the  buying  exchange  rate  for  the  relevant  currency  on  the  day 

preceding  each  respective  payment  date,  as  published  by  NBP  (unless  the  borrower  was 

obliged  to  make  payments  based  on  the  buying  exchange  rate  set  by  the  bank,  in  which 

case that exchange rate shall be used). The difference between the two amounts described 

in this paragraph forms the third component of the borrower’s new obligation to the bank. 

The amount represented by  the first component will substitute for the borrower’s obligation under 

the original, now-restructured foreign currency home loan. The loan will be performed according to 

the contractual terms of the original foreign currency home loan and bear the same interest rate as 

that described in section ii) above.  

In order to facilitate payment of the second and third components, the bank will be required to grant 

a  new  loan  to  the  borrower  for  the  remaining  period  of  the  original  foreign  currency  home  loan. 

Article 8  of  the  draft  law  refers  to  a  ‘non-mortgage  loan  redeemed  by  the  bank’  and  the  ECB 

therefore understands that the new loan will be uncollateralised. The interest rate on the new loan 

may not exceed NBP’s current reference rate. 

2 

1.5  Finally,  the  draft  law  amends  personal  income  tax  law  to  provide  relevant  tax  exemptions  for  the 

borrower  as  regards  the  amount  of  the  debt  subject  to  write-off.  The  draft  law  also  amends 

corporate income tax  law to treat the  non-mortgage backed debt  written  off by the bank  as a tax 

ECB-PUBLIC 

deductible expense.  

2. 

General observations  

2.1  Prior to the global financial crisis, borrowing in foreign currencies by households and non-financial 
corporations was popular in several Member States 2. As previously noted by the ECB3, the lower 

interest rates applicable to foreign currency loans compared to loans in the domestic currency, as 

well  as  the  expectation  of  domestic  currency  appreciation,  increased  the  demand  for  such  loans. 

Most  of  the  foreign  currency  loans  in  Poland  are  housing  loans  denominated  in  Swiss  francs 

(CHF).  Foreign  currency  housing  loans  constituted  approximately  47%  of  all  outstanding  housing 
loans and 29% of all outstanding loans to households in June 2015 4. 

2.2  Acknowledging that Directive 2014/17/EU of the European Parliament and of the Council 5 does not 
apply  to  credit  agreements  existing  before  21  March  2016,  as  previously  noted  by  the  ECB6,  the 

retroactive effect of the draft law does not seem to be in line with the general aim and principle of 

Article  23(5)  of  Directive  2014/17/EU.  This  Directive  allows  Member  States  to  further  regulate 

foreign currency loans, on the condition that such regulation is not applied with retroactive effect. 

2.3 

It is for the Polish authorities to assess whether the retroactive character of the draft law complies 

with Polish legal and constitutional principles. 

2.4  The  ECB  notes  that  the  draft  law  draws  on  previous  proposal  presented  by  the  Polish  Financial 

Supervision  Authority  (KNF),  with  the  notable  difference  that  the  KNF’s  proposal  anticipated  that 

the restructuring of foreign currency loans would be voluntary for both banks and borrowers. 

3. 

Specific observations 

3.1  Eligibility criteria 

3.1.1  The rationale behind the eligibility criteria for participation in the restructuring scheme raises some 

doubts.  In  particular,  the  ECB  notes  that  these  criteria  are  not  directly  linked  to  the  borrower’s 

actual income position. Given that not all households with a lower income and/or a fragile financial 

situation due to exchange rate fluctuations will be eligible, it is unclear to what extent the measures 

proposed in the draft law would substantially reduce overall loan default risks, or provide debt relief 

for low income households holding foreign currency home loans.  

3.1.2  The ECB also notes that the proposed eligibility criteria, in particular, the fact that they do not refer 

2  

3  
4  

5  

6  

For  further  information  on  lending  in  foreign  currencies  in  the  Union  see  the  Annex  to  Recommendation 
ESRB/2011/1 of 21 September 2011 on lending in foreign currencies (OJ C 342, 22.11.2011, p.1). 

See Opinion CON/2014/59, para. 2.2. All ECB opinions are available on the ECB website at www.ecb.europa.eu. 
See NBP Monetary and financial statistics report at 
http://www.nbp.pl/en/statystyka/czasowe_dwn/nalez_zobow_banki_en.zip. 
Directive 2014/17/EU  of the European  Parliament  and of the Council of 4 February  2014  on credit agreements for 
consumers  relating  to  residential  immovable  property  and  amending  Directives  2008/48/EC  and  2013/36/EU  and 
Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34).  

See Opinion CON/2014/59, para. 3.2. 

3 

 
 
                                                      
ECB-PUBLIC 

to a given household’s available income, could raise issues of equal treatment. 

3.1.3  Finally,  the  ECB  notes  that  the  criterion  linked  to  the  LTV  ratio  may  be  difficult  to  assess  given 

fluctuations in the exchange rate.   

3.2  Effects on the banking sector  

3.2.1  The ECB notes that the implementation of the draft law is expected to entail financial costs for the 

banking sector. This, in turn, may negatively affect profits and the future lending capacity of certain 

credit  institutions.  In  particular,  by  introducing  a  restructuring  right  that  will  be  exercisable  over 

several  years,  the  draft  law  might  create  a  challenge  for  the  Capital  Adequacy  Assessment 

Processes  (ICAAP)  of  the  affected  institutions,  potentially  leading  to  increased  write-down 

requirements. As a result, and given that foreign banking groups are dominant investors in banks 

that  hold  almost  60%  of  banking  assets  in  Poland,  it  cannot  be  excluded  that  the  measures 

affecting foreign currency loans in Poland might also have cross-border effects on the consolidated 

profits  of  international  banking  groups.  However,  given  the  cost  estimates  presented  in  the 

explanatory  memorandum  to  the  draft  law,  and  the  relatively  small  size  of  the  majority  of  Polish 

banking subsidiaries, as compared to their parent banking groups, such spill-over effects should be 

limited. 

3.2.2  As regards the proposed burden-sharing mechanism described in points (ii) and (iii) of paragraph 

1.4 above, the ECB notes that the new loans granted to borrowers who take advantage of the right 

to  restructure  will  not  be  priced  at  market  rates.  The  proposed  establishment  of  NBP’s  current 

reference interest rate as the maximum interest rate for such new loans is substantially below the 

usual pricing of uncollateralised, long-term non-mortgage loans. This could have a further negative 

effect on the future profitability of the affected banks.  

3.2.3  From  a  banking  supervisory  perspective,  the  ECB  notes  that  the  restructuring  of  the  foreign 

currency  loans as proposed by the draft law does not eliminate all risks relating  to such loans,  in 

particular interest rate risks. 

3.2.4  It should also be noted that the restructuring will lead to a one-off increase in operational costs for 

the  affected  credit  institutions  in  Poland,  in  particular,  due  to  revaluation,  unwinding  of  existing 

hedges and refinancing. In that context, the KNF is recommended to consider how it could address 

potential  negative  effect  on  the  sound  capital  base  of  the  credit  institutions  concerned  resulting 

from the application of the draft law.  

3.3   Effects on financial stability  

3.3.1  The ECB has pointed out on several occasions the risks associated with foreign currency loans 7. In 

particular,  they  represent  a  major  risk  to  financial  stability  in  several  Member  States,  where  the 

share of foreign currency loans is relatively high. The ECB points in this respect to the analysis of 

such  risks  made  by 

the  European  Systemic  Risk  Board  (ESRB)  and 

to 

the  ESRB 

recommendations  for  addressing  such  risks,  made  in  Recommendation  ESRB/2011/1  of 
21 September 2011 on lending in foreign currencies 8.  

7  

8  

See  in  particular  the  ECB  Financial  Stability  Review  of  June  2010  and,  in  respect  of  the foreign  currency  loans  in 
Hungary, Opinions CON/2011/87, CON/2012/27, CON/2014/59, CON/2014/72 and CON/2014/76. 

Recommendation ESRB/2011/1 of 21 September 2011 on lending in foreign currencies (OJ C 342, 22.11.2011, p.1). 

4 

                                                      
ECB-PUBLIC 

3.3.2  However, in the case of Poland, such risks do not, at present, appear to be of a systemic nature for 

the  financial  system  and  are  not  seen  as  representing  a  particular  risk  from  a  financial  stability 

perspective.  First,  the  share  of  such  foreign  currency  housing  loans  in  the  total  housing  loan 

portfolio is diminishing and currently amounts to around 47%. Second, following the adoption and 
revision by the  KNF  of Recommendation  S9, the supervisory  guidelines related to the granting of 

housing loans have tightened significantly, mainly from January 2014. This measure includes, inter 

alia, a maximum loan maturity (35 years, with a recommended maximum maturity of 25 years), the 

requirement  to  grant  the  loan  in  the  currency  of  the  borrower’s  income  (in  force as  of  July  2014) 

and  a  maximum  level  for  the  LTV  ratio  for  newly  granted  housing  loans  (95%  in  2014,  with  the 

general  target  value  of  80%  from  2017).  The  revised  Recommendation  S  has  contributed  to 

maintaining the positive trend in the currency structure of new mortgage lending in Poland and, in 

the  longer-term,  should  result  in  a  more  balanced  growth  of  housing  loans.  Finally,  the  current 

macroeconomic  situation  in  Poland  is  characterised  by  sustained  strong  economic  growth, 

increasing  real  disposable  income  of  households  and  an  ongoing  decline  in  unemployment, 

reducing the default risks associated with home loans.  

3.3.3  From a financial stability perspective, and subject to the comments on the appropriateness of the 

eligibility criteria set out in paragraph 3.1, the conversion of foreign currency loans should reduce 

part of the currency mismatches in households’ balance sheets. This is expected to provide relief 

for distressed foreign currency borrowers and contribute to reducing the credit risk of banks in the 

longer-term. 

3.3.4  As regards the longer-term effects on financial stability, the ECB remains of the opinion that, when 

introducing  measures  in  relation  to  settling  and  converting 

foreign  currency  loans,  due 

consideration  should  always  be  given  to  fair  burden  sharing  among  all  stakeholders,  thus  also 
avoiding  moral  hazard  in  the  future 10.  This  consideration  should  also  include  foreign  banking 

groups, whose Polish subsidiaries currently hold close to 60% of all banking assets in Poland.  

3.4   Effects on the Polish economy  

3.4.1  The draft law might also have some negative effects if it leads to a deterioration of foreign investor 

sentiment due to a perceived increase in legal uncertainty and country risk. Consequently, the ECB 

suggests  that  the  Polish  authorities  carry  out  a  thorough  analysis  of  the  possible  effects  on  the 

economy of introducing measures having retroactive effect. 

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 5 August 2015. 

[signed] 

The President of the ECB 

Mario DRAGHI 

9  

10  

Recommendation S on good practices with regard to management of credit exposures that finance property and are 
mortgage-secured, last revised in June 2013. Available on the KNF website at www.knf.gov.pl.  

See CON/2014/59, para. 3.4 and CON/2014/87, para. 3.3.  

5