Poland softens Swiss franc loans conversion plans

By Marcin Goclowski and Jakub Iglewski

WARSAW, Aug 2 (Reuters) - Poland plans to offer banks inducements to help its home owners struggling with costly Swiss franc mortgages to switch them into zlotys, a move welcomed by markets as a step back from earlier proposals for a compulsory conversion process.

Polish markets rallied on the announcement, with the zloty hitting two-month highs against the euro and shares in banks such as the Polish arms of Santander, BCP and Commerzbank, jumping by up to 13.5 percent.

More than half a million Poles took out Swiss franc loans to benefit from low interest rates in Switzerland, but now face much bigger repayments because the Swiss currency has doubled in value against the zloty over the last few years.

This became a top issue during last year's presidential election, with the winning conservative Andrzej Duda making a promise to solve the problem a key element of his campaign.

Tuesday's proposal, which has to be approved by financial regulator KNF, would still increase capital requirements and risk weighting ratios for banks with Swiss-franc mortgages on their books.

"Our goal is to redenominate loans" presidential aide Maciej Lopinski told a news conference.

"But there are different ways to achieve it. There is the legislative route and the amicable route."

Duda's proposal in January for legislation to force the banks to convert the foreign currency loans at historical exchange rates triggered a sell-off in bank stocks after KNF said it would cost the lenders some 67 billion zlotys ($17 billion).

"This (new) proposal is much milder compared with what had been proposed earlier," said brokerage DM BOS's analyst Lukasz Bugaj.

Poland's banks are already nervous because the conservative Law and Justice party (PiS), which won a parliamentary election several months after Duda took office, has long said it wanted more control of the economy and to make them finance its welfare spending agenda.

On Tuesday central bank governor Adam Glapinski, also a PiS ally, said he expected lenders to start to convert "several dozen of percentage points" worth of Swiss franc loans on their books within a year after the new regulations are implemented.

He gave no estimate of the cost of such a conversion and said the exact terms of the redenomination would have to be agreed between borrowers and lenders on an individual basis.

This, analysts said, offered relief to banks because the process of agreeing terms could take a long time.

Officials said, however, that a law would be passed to force banks to repay what they said were excessive currency conversion fees, or so-called spreads, paid for loan holders, and that this would impose a cost of up to 4 billion zlotys on lenders.

"The proposals are far from satisfactory," said consumer lobby group Stop Bankowemu Bezprawiu's secretary Mariusz Zajac.

"We think that Mister President yielded to the banking lobby ... He is going backwards, retreating from his election promises," he said.

($1 = 3.8674 zlotys) (Additional reporting by Wiktor Szary, Anna Wlodarczak-Semczuk, and Marcin Goettig; Editing by Alexander Smith, Greg Mahlich)

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