According to the Board of the Polish Financial Supervision Authority (KNF Board), the Polish banking sector is secure and well-capitalised. The policies that have long been pursued by the KNF Board and other institutions in the financial security network have resulted in banks with a large share of foreign-currency credit facilities being required to hold appropriate capital, and that has limited the related risk. As a result of such measures, the banking sector is well-prepared for the judgment of the Court of Justice of the European Union (CJEU) of 3 October 2019 on loan contracts indexed to a foreign currency.

In recent years the KNF Board and the UKNF have adopted, and continue to adopt, measures to improve resilience of the banking sector to potential risks associated with foreign-currency credit facilities. The measures seek to ensure the stability of the sector, which is of crucial interest to banks’ customers. Key measures:

• In 2015, the UKNF set the amount of additional capital requirement for the risk associated with foreign-currency credit facilities; consequently, individual decisions (which however followed from a single methodology for all banks) were issued for banks most engaged in providing foreign-currency credit facilities to oblige them to hold appropriate own funds and capital ratios, considering the risk profile of their credit portfolios and the quality of management (the value of the additional capital requirement is updated annually according to current status of the bank’s portfolio, and the methodology is also updated annually, which enables the UKNF to adjust it to the current environment);
• As recommended by the Financial Stability Committee (FSC), the UKNF has extended the process of setting additional capital requirements to cover the risk associated with foreign-currency credit facilities to include, among other things, legal risk and since 2017 the UKNF has determined an additional capital requirement (appropriate for each bank included in the process) to cover the legal risk associated with holding a portfolio of foreign-currency credit facilities;
• The UKNF monitors whether as part of management of that risk a bank properly identifies the financial impact of that risk, for example the impact of exchange rate movements on the probability of default (PD), thus having appropriate procedures for continuously monitoring the impact of movements in the relevant exchange rates on the quality  of the credit portfolio;

• The supervisor’s consistent dividend policy has substantially strengthened the banks’ capital base—over 60% of profits have been retained in the past five years, including 62.4% of the profit for 2018; for banks with material exposures to foreign-currency home loans, the amount of the dividend is set according to additional criteria, which require banks to retain most of the profit.

The UKNF initiated work in the area of legislative intervention, which in 2011 led to the entry into force of the ‘anti-spread law’; the law obliges banks to enable borrowers to repay the loan directly in the currency in which the loan was granted, without additional fees. The law also introduced the requirement to lay down, in the loan contract, detailed rules for setting out the methods and dates for determining the exchange rate which provides the basis for calculation of the amount of the loan, its tranches, the principal or interest instalments, and the rules for conversion into the currency of the disbursement or repayment of the loan.

The foreign-exchange risk borne by a customer is also mitigated by the provisions of the Act on mortgage credit and supervision of mortgage credit intermediaries and agents of 2017, under which mortgage credit may only be granted in, or indexed to, the currency in which the consumer receives most of his/her income or holds most of his/her funds or other assets measured in the currency of the mortgage credit or the currency to which the mortgage credit is indexed.

• Recommendation S on good practices in the management of credit exposures related to real estate financing and secured by mortgages , issued in 2006 and then amended by the KNF Board in 2008, 2011 and 2013, as well as

• Recommendation T on good practices in risk management for retail credit exposures, issued by the KNF Board in 2010, amended in 2013.

Regardless of the measures adopted by the KNF Board and the UKNF, the FSC (the macro-prudential supervisor) recommended in 2017 that the risk weight be increased to 150% for exposures secured by a mortgage for residential real estate for which the amount of the principal or interest instalment depends on the movements in the exchange rate of the currency or currencies other that the currency or currencies of the creditor’s income. The FSC recommended a 3% systemic risk buffer for all exposures in the Republic of Poland in order to ensure resilience of banks to adverse events relating to the Polish economy and the possibility of occurrence of external shocks.

The above-mentioned measures taken by the KNF Board and other institutions in the financial security network have significantly strengthened the capital base of commercial banks, with a positive effect on the stability of the whole banking sector in Poland and on external ratings of the domestic financial system, seen both as a whole and as individual institutions. A strong capital base of banks means that banks can absorb potential losses. It is an important factor which reduces systemic risk and maintains confidence in the financial system (including the banking sector) and the economic stability in the country. The current situation is confirmed by the recent opinions of credit rating agencies: Moody’s, S&P, and Fitch.

In the light of the above circumstances, the KNF Board and the UKNF consider that the banking sector in Poland is well-prepared for potential consequences of the judgment of the CJEU. Regardless of this, the supervisory body monitors and analyses the situation related to the potential change in the jurisprudence of common courts and the information policy of banks listed on the Warsaw Stock Exchange on an ongoing basis.