New act supporting Swiss franc borrowers - what can the banks do?

Last week the lower house of the Polish Parliament passed a draft act aimed at supporting borrowers affected by the change in the CHF/PLN exchange rate. The act was passed with amendments which significantly modified the initial draft proposed by the governing Civic Platform party.

According to the initial draft, borrowers would be entitled to convert their loans (indexed to or denominated in foreign currencies) into Polish zlotys. The banks would be obligated to write off 50% of the extra debt which results from the rise of the value of the foreign currency (as compared to the amount that would have been due to the bank had the loan been extended in Polish zlotys). The draft law was to apply only to borrowers that own smaller flats or houses. Furthermore, the conversion was supposed to be available only to borrowers with an LTV (loan to value) level of at least 120% (after a year this would be reduced to 100% and after two years to 80%).

The amended bill passed in the lower house of Parliament stipulates more radical solutions. Banks would be obligated to write off 90% of the extra debt resulting from the appreciation of CHF (or other foreign currency). The maximum size of flats and houses owned by borrowers entitled to the conversion of their loans would also increase. Furthermore, the minimum required LTV level will be 80% from the moment the law enters into force.

It is possible that the final version of the bill will not be so radical. The upper house of Parliament (dominated by Civic Platform) will most likely reject the amendments passed in the lower house. This would mean that the bill will be returned to the lower house, which will decide whether to accept or reject the upper house’s position.

Regardless of the final version, the act will seriously affect the banking sector.

What can the banks do to protect their interests?

Firstly, the draft act raises constitutional concerns. The act may be viewed as a violation of banks’ proprietary rights, the principle of reliability of the law, the principle of the equality of parties to private contracts and the freedom to pursue economic activity. The act could be challenged before the Constitutional Tribunal based on the motion of certain authorised bodies (e.g. the President, a group of members of Parliament, the Ombudsman). Furthermore, a common court may ask the Tribunal to check the constitutionality of the act if the act is applied in a case pending before such court. Private entities (e.g. banks) may initiate proceedings before the Tribunal by filing a constitutional complaint. However, such a complaint requires first obtaining a final court ruling which applies the provisions of the challenged act.

Secondly, foreign shareholders of Polish banks affected by the act could sue the Polish state before an arbitral tribunal, claiming that Poland violated the provisions of Bilateral Investment Treaties (BITs). Poland signed BITs with the US as well as a number of European countries. BITs ban groundless infringements of foreign investor’s rights and give them the possibility to seek compensation in arbitral proceedings.

A detailed constitutional and BIT analysis will be possible once the final version of the law is enacted. In the meantime we will monitor the legislative process and let you know about significant developments.