Banking lobby warns of high cost of mortgage payment freeze

The so-called mortgage vacations proposed by the government may cost the banking sector up to EUR 6.56 billion and add fuel to Poland's record-high inflation, a deputy head of the Polish Bank Association (ZBP) has warned.

The government has proposed the so-called mortgage vacations, a four-month suspension of payments per year, as a solution to problems some borrowers may have after the central bank's interest rate hikes nearly doubled their monthly mortgage payments.

According to government estimations, the cost of the vacations for the taxpayers will be PLN 4 billion (EUR 0.65 billion) annually, assuming that only half of eligible borrowers decide to make use of the new measure. The banking sector will have to stomach an additional cost of PLN 8.9 billion (EUR 1.93 billion) in 2022 owing to the new legislation, the government has calculated.

But Tomasz Bialek told PAP the government may have seriously underestimated the total cost for the banking sector if all mortgage borrowers decided to suspend their payments.

"The draft is inconsistent with earlier statements by Prime Minister Mateusz Morawiecki, who said that mortgage vacations were to be an instrument for people who need help as they have problems with their household budgets," Bialek said. "The vacation suggested in the draft is designed for everyone and this is what raises our serious concerns."

According to the banker, the government has underestimated the number of borrowers who may decide to go on a mortgage vacation.

"Assuming no initial conditions, we believe that about 80 percent of borrowers may make use of a credit vacation," Bialek warned. "This translates into a huge burden for the banking sector, up to PLN 30 billion (EUR 6.56 billion) over two years."

He also said the measure could further stoke inflation, which is already at 12.4 percent, a level not seen in more than two decades.

"Taking into account the scale of the solution, it can translate into a strong inflationary pressure," Bialek said. "This measure runs against the actions undertaken by the Monetary Policy Council (the central bank's rate-setting body - PAP), which has been raising rates to mop up excess cash in the economy."

As a solution that would alleviate banks' concerns, Bialek suggested that the mortgage vacation should only be available to borrowers whose monthly mortgage payments constitute at least 40 percent of their household budgets.

The National Bank of Poland said on Thursday that a temporary suspension of mortgage payments may cost the banking sector up to PLN 20 billion (EUR 4.34 billion), more than the government had estimated.

The central bank also said that if the new measure was introduced with no conditions attached, it could weaken the NBP's drive to lower inflation.