Could ECJ ruling force Polish mortgages to convert to zloty?

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ECJ Ruling Could Mandate Conversion of Polish Mortgages to Zloty

The European Court of Justice (ECJ) is expected to rule on October 3 whether foreign currency-denominated mortgages granted by Polish banks were legal, a decision that could compel the unwinding of these contracts and their redenomination into the Polish zloty. This potential ruling stems from a query by a Polish judge to the ECJ regarding the legality of such contracts under European law. If deemed illegal, the consequences could be significant, potentially leading to a cascade of lawsuits and substantial financial repercussions for Polish banks.
Legal Challenge to Foreign Currency Mortgages

The core of the impending ECJ decision revolves around the legality of foreign currency-denominated mortgages, specifically those issued by Raiffeisen Bank. Approximately 700,000 Polish citizens took out mortgages denominated in Swiss francs nearly two decades ago, attracted by lower interest rates compared to zloty loans. These foreign currency loans now represent a substantial portion of the Polish mortgage market, totalling 124 billion zloty. However, a significant appreciation of the Swiss franc against the zloty has led many borrowers to face much larger repayment instalments than initially anticipated, creating a significant financial burden.
Potential Financial Impact on Polish Banks

An analyst has suggested that the ECJ's ruling could lead to a determination that certain Polish mortgages should be unwound and treated as if they were originally contracted in zloty. This scenario presents a considerable challenge for the banking sector. The ZBP banking lobby estimates that the total cost for banks could reach 60 billion zloty if all borrowers with such loans were successful in court, a figure that is four times greater than the combined net profit of Poland's banks in 2018. This potential financial strain could necessitate some banks seeking fresh capital.
Escalating Legal Action and Broader Regional Context

The number of legal cases initiated by borrowers against banks in Poland has been rising, with justice ministry data showing a 39 per cent increase in new cases in the first six months of 2019, reaching 2,021. This trend is seen by some lawmakers as a precursor to an "avalanche of lawsuits" following the ECJ's judgment. The situation in Poland mirrors challenges faced in other European countries. For instance, in Croatia, legal changes in 2015 led to the conversion of most foreign currency loans into euros at the banks' expense, and subsequent court rulings allow individual borrowers to sue for compensation. In contrast, Romania has largely resolved its foreign currency loan issues through rescheduling and conversion, with such loans representing a smaller portion of the market.

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Could ECJ ruling force Polish mortgages to convert to zloty?

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