EU’s top court takes side of Polish FX mortgage borrowers

Polish borrowers with mortgages denominated to foreign currencies may issue claims against banks, the EU top court's advocate general has said.

Although Polish banks ceased to offer FX-denominated mortgages in 2012, the outstanding loans of around PLN 130 billion (EUR 28 billion) still pose a risk to the Polish banking sector as customers sue banks for damages in courts.

Most FX loans were denominated to CHF when the Polish national currency was strong, but later on the Swiss franc appreciated rapidly, leaving the customers with extensive debt to pay off.

"After the annulment of a mortgage loan agreement due to unfair terms, consumers may assert claims against banks that go beyond reimbursement of monetary consideration; banks may not," Michael Collins, advocate general for the Court of Justice of the European Union (CJEU) wrote in an opinion on Thursday. In its ultimate ruling, CJEU does not have to follow the advocate general's opinions, though it usually does.

"It is a matter for national courts to determine, by reference to national law, whether consumers have the right to assert such claims and, if so, to rule on their merits," Collins added.

At the same time, according to Collins, a bank is not entitled to assert against a consumer claims that go beyond reimbursement of the loan capital transferred and payment of default interest at the statutory rate from the date of the request for reimbursement.

Estimates made by the Polish financial regulator KNF show the 14 commercial banks which hold nearly 100 percent of the CHF denominated mortgages could face a one-off cost of about PLN 100 billion (EUR 20.9 billion).

In the first eleven months of 2022, Polish banks posted net profit of PLN 13 billion (EUR 2.72 billion).

KNF president, Jacek Jastrzebski, recently told the business newspaper Parkiet that "denying banks compensation for the use of capital (by their customers - PAP) could lead to a significant disturbance of the stability of the Polish banking system, and in a highly probable scenario - even to its breakdown."

Polish listed banks took a hit upon the news at the Warsaw Stock Exchange on Thursday, with the benchmark index WIG-banks falling by 2.2 percent at midday.