PFSA’s standpoint on credit risk mitigation

The Polish Financial Supervision Authority has published its standpoint on activities aimed at reducing the level of credit risk. The document is addressed to managers of banks and branches of credit institutions in Poland. The deadline for the above institutions to comply with the PFSA guidelines is 31 March 2022.

Interest rates in Poland

In 2020, to mitigate the economic effects of the pandemic in Poland, the Monetary Policy Council repeatedly cut interest rates of the National Bank of Poland. The rates at that time remained at record lows for a long time.

Inflation has pushed interest rates higher, and they are now at their highest since 2014. As a result, mortgage rates have risen significantly.

Credit risk

The Polish Financial Supervision Authority (“PFSA”) has indicated the need to take urgent measures to reduce the level of credit risk associated with the rising cost of debt servicing for borrowers in recent months. These actions are to concern both newly granted loans and existing loans.

The KNF’s position is available at the link below:

https://www.knf.gov.pl/knf/pl/komponenty/img/Stanowisko_UKNF_do_bankow_ws_ryzyka_kredytowego.pdf

Recommended actions

The PFSA’s intention is for the banks to take steps to effectively promote the offer of a loan with a periodically fixed interest rate and to ultimately introduce into their offer a loan with a fixed interest rate for the entire loan term. KNF stresses that such an offer should be a real alternative for consumer interested in a mortgage loan, i.e. that they should be willing to consider it as an efficient, cost-effective hedge against rising loan interest rates.

The Polish supervisor presented its concept promoting the development of a mortgage bond, the use of which could facilitate the effective introduction of fixed-rate and periodically fixed-rate loans to the market and have a positive impact on interest rate risk management.

The Financial Supervision Authority recommends that banks:

• conduct an information campaign for consumers, in terms of explaining the risk of interest rate volatility and interest rate reference indices,
• remind their clients already holding a mortgage loan of their right to convert a variable-interest loan into a fixed-rate or periodically fixed-rate loan, as well as not applying any barriers to such conversion,
• actively inform consumers about the possibility of using the instruments outlined in the Act to support mortgage loan holders who have taken out a home loan and are in a difficult financial situation.

eadline for implementation of the changes

Banks and credit branches should comply with the recommendations indicated above by the end of March 2022. PFSA expects the banks to inform the Authority about the actions taken by 05.04.2022.

The PFSA will independently, during supervisory activities, evaluate the applied recommendations.

Questions or concerns – contact our law firm

Should you have any questions or doubts, we encourage you to contact our Law Firm. Inquiries can be directed to: [email protected]