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Polish banks face huge losses under proposed FX loan legislation

Controversial proposed legislation in Poland would make banks bear Forex risk under existing foreign exchange-based consumer loans. The bill was ultimately abandoned after fierce resistance from major financial institutions, including warnings that they would seek protection in international investment arbitration. However, the President and some newly elected MPs have declared that they will file a similar draft bill for Parliament’s consideration.


For several years, foreign exchange mortgage loans (in any currency other than PLN) were popular with Polish borrowers (including consumers) because the interest rates were much lower than for PLN loans. However, when the PLN weakened against foreign currencies, in particular CHF, borrowers’ repayments increased significantly. This problem also arose in other European countries, including Hungary.1

During his presidential campaign, the current President suggested that FX loans should be converted into PLN at the historic exchange rate prevailing on the date the loan was made. Simultaneously members of the lower house of Parliament submitted and approved a bill (Bill), under which banks would be obliged to restructure their FX loans – eligible consumers could apply to redeem 90% of the difference between their existing FX loans and the hypothetical PLN equivalent which would be outstanding if they had originally taken the loan out in PLN. The Bill did not propose that the banks would be compensated.2

Adverse impact on banks

When the Bill was passed to the upper house of Parliament, the Polish Financial Supervision Authority estimated that the projected mandatory FX loan restructuring could cause the banking sector PLN 21.9 billion (over EUR 5 billion) in aggregate losses. The programme would significantly reduce the value of FX loan portfolios and their expected profitability. Some lenders would also need to cancel associated hedging and refinancing arrangements.

The potential massive impact on the banking sector was recognised by the markets. The day after the Bill was approved by the lower house, the capitalisation of stocks in banks listed on the Warsaw Stock Exchange nosedived by approx. 6% and the intraday drops in shares in banks with significant FX loan exposure exceeded 25%.

Pressure mounts on Parliament

Correspondence published in August 2015 on the Parliament’s website shows that major financial institutions have objected to the Bill. The CEO of one domestic bank has called for the Bill’s withdrawal because it “weakens the so far very good investment climate in Poland among foreign investors, and it leaves market participants with formal and legal doubts”.3

Foreign stockholders in other banks reminded Parliament that they are protected by international investment treaties (BITs). For example, one bank announced that its investments in Poland would be substantially affected by the FX loan restructuring programme,4 while another said that if Poland failed to meet its commitments to foreign investors, its representatives would have a duty to seek compensation.5 Similar messages were sent by Other banks6 and one major corporation (which holds a majority stake in domestic Bank BPH S.A.) declared that it intended to demand full compensation for the damage caused by the new legislation, and asked Poland to treat its letter as notice of a dispute under the relevant BITs.7

Following this extraordinary external pressure, the upper house reduced the redemption rate to 50% of the difference between the existing FX loan and the hypothetical PLN loan, and returned the Bill to the lower house. The majority party then decided to abandon the Bill and instead to only subsidise borrowers who were worst affected. For example, a borrower who lost his/her job or who spends more than 60% of the household’s monthly income on mortgage repayments can receive an emergency, interest-free loan from a special fund to cover up to 18 consecutive monthly installments of the mortgage loan. This support, however, cannot exceed PLN 1,500 (approx. EUR 350) per month. Note that this programme is also available to distressed borrowers who took out loans in the local currency.8 However, the President and some members of the newly elected Parliament have claimed that work on the statutory conversion of FX loans into PLN loans should be resumed as soon as possible. So we can expect that the Parliament will be debating a similar initiative in the near future.


If the proposed FX loan legislation is enacted, the Polish State would be exposed to liability to banks and their owners. The proposed legislation does not appear to comply with the fundamental principles of Polish, European and international investment legal regimes, which generally seek to protect: (i) entrepreneurial interests; and (ii) the right to private property. Some will argue that it is tantamount to “regulatory expropriation” for the benefit of eligible individuals.9 For foreign shareholders, such changes to the Polish banking environment could amount to inequitable treatment under the relevant BITs thus giving rise to state liability. A stable legal framework for investments is one of the key duties owed by a Host State to foreign investors.10 However, the contemplated restructuring would:

(i) not be voluntary for both banks and borrowers;

(ii) retrospectively affect existing contracts between private parties, which were lawfully executed under then existing Polish law; and

(iii) not be introduced together with a state compensation mechanism either for the aggrieved banks or their stakeholders.


1. For details, please see: B. Sahin-Toth, I. Kasa, Challenge to the validity of FX Loans, European Finance Litigation Review, September/October 2013, page 10-12.
2.The domestic banks would have been allowed only to add the redeemed amount to their tax deductible expenses.
Letter from BGŻ BNP Paribas S.A. dated 25 August 2015, which was published at:
Letter from Banco Comercial Portuges S.A. dated 18 August 2015, Polish sworn translation at:
Letter from Deutsche Bank AG dated 17 August 2015, Polish sworn translation at:
Official Polish translation letter from Commerzbank AG dated 14 August 2015 and the original, bi-lingual letter from Raiffeisen Bank International AG dated 17 August 2015, at:
Letter from GE Group dated 21 August 2015, published at:
Polish Act dated 9 September 2015.
Note that Poland already faces an investment treaty claim of approx. EUR 500 million because of alleged regulatory expropriation in the banking sector. The background is that the Polish watchdog ordered Abris Capital to sell its stake in FM Bank PBP, and the shareholder instigated international arbitration under the BIT between Poland, Belgium and Luxembourg. Please see: M. Goclowski, A. Krajewski, Abris fund sues Poland for USD 600 million over forced bank sale, dated 26 November 2014,, and E. Twaróg, Abris pozywa Polskę do arbitrażu, dated 20 May 2014,
Nevertheless, given that FX loans are not written off in full and the foreign shareholders are not deprived of their shares in Polish banks, Poland might argue that the FX loan legislation has not led to a substantial foreign investor deprivation. Additionally, not every instance of regulatory interference with an investor’s property rights, even if substantial, will necessarily be considered expropriation. To determine the Host State’s liability under the BIT, it is also important to determine whether a particular investor had a legitimate expectation of the stability of the legal framework.