PLN joins underperformers as mortgage loan fears dominate

CEE exchange rates remained under pressure last week despite better-than-expected June manufacturing data from key countries such as Hungary and Turkey. Currencies remained under pressure across the board, as G10 indicators moved firmly in the direction of a September Fed lift-off. 

TRY and ZAR are well-known problem currencies in the region in this environment, of course, but there are idiosyncratic stories too, particularly surprising has been the weakness of the zloty whose underperformance vs. the forint can be traced to developments on the Swiss Franc mortgage front. 

Indeed, Poland is now going through the cycle which Hungary went through a year ago, with every day bringing a new estimate regarding the potential loss for banks from CHF mortgage conversion. Last week was no exception, ruling party, PO's, mortgage conversion proposal was passed by MPs in the lower house of parliament, but not before the burden-sharing ratio (of the exchange rate loss) between banks and borrowers had been amended from 50:50 to 90:10 against banks. 

PO vows to reverse this amendment at the Senate and restore equal burden-sharing, but there is no guarantee and new President Duda, who wants banks to bear all the loss, probably will not sign the bill unless banks share bulk of the loss. 

"Legislation on this is unlikely to become final until after the October general elections , meanwhile, the risk premium on Polish banks and assets could soar", says Commerzbank.