Losses faced by Poland's banks in Q4 weigh on Zloty

Poland's currency PLN is weighed on by the additional losses that would be faced by Polish banks on their earnings, because they will be needing to pay for a co-operative bank, which has failed off-late. This bank owes PLN 1.7 bn to public in guaranteed deposits.

These additional contributions need to be made by the entire banking sector in final quarter of this year, which should total out to the amount.

The banks face new charges ahead, which are not related, for instance the newly launched mortgage borrower relief fund, whose contributions are likely to total PLN 600mn.

The banks also need to pay from their 2016 regular annual contribution for the deposit guarantee fund(BFG), which would be announced by the government today, which might be around 2.3 bn PLN.

This is not related to the payout for the failed co-operative bank. All this together suggests that individual banks have to undergo a loss in Q4, which is a market concern and also for the zloty.

"In the medium-term, we expect the new government to take a harsh stance on Polish banks, especially in the area of FX mortgages, but in our view this risk premium has been gradually priced-in over the past quarter, hence we do not see sustained downside for the zloty from current levels", says Commerzbank in a research note.