The Polish Financial Supervision Authority (KNF) considers developers’ demands to loosen the prudential policy regarding access to housing loans to be unjustified and disturbing, as they may be misleading as to the actual safety of long-term financial obligations, the Commission said in a statement. It shows that developers may lower their margins instead of focusing on the decrease in the creditworthiness of potential apartment buyers.
For some time now, the Polish Financial Supervision Authority Office has been observing in the media the increased activity of development companies and their related analysts, focused on the deteriorating situation on the housing market, and indirectly – also on their own. According to the presented opinions, this is to be associated with a decrease in the creditworthiness of potential apartment buyers, which is to result mainly from the expectations of the KNF regarding the rules of examining creditworthiness by banks. In these opinions, emphasizing, inter alia, concern for the availability of housing for young Poles, it is indicated that the precautionary actions of the PFSA Office in this respect are incomprehensible or redundant, KNF announced.
The KNF Office explains that the housing market is significantly influenced by many factors, such as apartment prices in the first place, which depend, among others, on on their supply, energy prices, prices and availability of building materials or qualified employees, as well as developers’ margin policy. The supply, in turn, including, in particular, the availability of flats to individual customers, is largely shaped by investment demand related to the phenomenon of wholesale purchase of new flats by institutional clients. This market is also influenced by the tendency of buyers to incur long-term liabilities, which includes not only the ability to repay these liabilities assessed by the bank, but also the self-assessment and concerns of potential borrowers in this regard.
According to KNF, if developers really care about the availability of housing for young Poles, they have the opportunity to adjust their own margin policy in this respect. According to the data of the Polish Financial Supervision Authority, the average gross profitability of the development sector on sales for 2021 was 31%, while for the first H1 2022 – 29.4% (data was prepared for entities listed on the regulated market and in the Alternative Trading System, ie for 13 companies from the regulated market and 2 companies from NewConnect)
Therefore, according to the KNF Office, the currently formulated postulates to loosen the prudential supervision approach in the name of increasing the availability of credit for the purchase of real estate sound disturbing, especially in the context of the analogous historical discussion on the availability of loans denominated in or indexed to the Swiss franc (CHF), which took place in 2006. in an attempt by the supervisory authority to reduce the risk associated with these products, according to the Office, it is worth paying attention to recommendations.
Further, the Commission cites several fragments of – in her opinion disturbingly familiar-sounding today – expert opinions from that period:
– Foreign currency loans are safer for both banks and customers, therefore the introduction of restrictions on their granting is not economically justified […] The introduction of quantitative and qualitative restrictions on the supply of foreign currency mortgage loans will negatively affect economic growth
– There are no economic grounds for introducing restrictions on the access to mortgage loans denominated in foreign currencies. The new restrictions will increase costs for the economy […] this will contribute to a significant disruption of supply and demand in the housing market and deterioration of the banking sector due to a significant drop in revenues of some banks
– According to the available analyzes, the zloty is expected to strengthen in the future. The calculations clearly show that the costs of a mortgage loan denominated in Swiss franc, the most popular among Poles, would equal the costs of a PLN loan in a situation when the exchange rate of the Swiss franc would increase by almost 26% and the interest rate of loans by as much as 82%
– Although theoretically the zloty could lose value against the euro, Swiss franc or dollar, it is difficult to assume that it will be a 50 or 100% devaluation. Only with such a drastic decrease, the costs of the loan in the currency would be equal to the loan in PLN. Even the most pessimistic forecasts do not justify such a devaluation of the zloty.
Further in the statement, the KNF Office indicates that, similarly to today, the surveillance activities were then considered particularly severe towards young people, who were deprived of the possibility of fulfilling their dreams of owning their own apartment. It was pointed out that Recommendation S restricts competition on the Polish credit market in a very dangerous way. Protests and social campaigns were initiated under the eloquent titles of today, such as “Freedom for Dreams, Freedom for Loans” or “We Want to Risk”.
We are dealing with the negative consequences of this phenomenon so far and there are many indications that we will face it for a long time. It is certainly worth drawing conclusions from the history. CHF. Certainly, apart from law firms representing CHF borrowers in disputes with banks, there are the main beneficiaries of the mass granting of foreign currency mortgage loans, KNF stated.
The basic mandate of the Polish financial supervision, i.e. the Polish Financial Supervision Authority and the KNF Office, is to care for the stability and security of the Polish financial sector, including the banking sector, and thus also for all – it should be emphasized – its clients. The purpose of Recommendation S issued by the Polish Financial Supervision Authority, expectations as to the way it is applied, as well as the goal and mandate of the supervisory authority is not to control supply and demand on the housing loan market, and even less so on the housing market, but to ensure the stability and security of the financial sector. as well as global and geopolitical trends. These are factors that call for extreme caution, also in terms of consumer indebtedness. Therefore, we consider developers’ demands to loosen the prudential policy of the KNF Office to be unjustified, and their media narrative as harmful and potentially wp mislead about the actual security of long-term financial obligations, declares the Office.
Since the issuance of the KNF recommendation, new, significant risk factors have emerged and developed, and the market situation has not changed enough to warrant banks departing from increased caution when assessing the creditworthiness of potential mortgage borrowers. The recommendation regarding the assumptions made in the process of assessing creditworthiness regarding the minimum potential change in interest rates is fully consistent with the current Recommendation S and is aimed at limiting the level of credit risk borne by banks in connection with the growing costs of debt servicing by borrowers, it was also recalled.
The KNF Office emphasizes that it constantly monitors the risk related to granting housing mortgage loans, shaping the parameters of the supervisory policy so that they ensure the stability and security of the Polish financial sector. As part of this monitoring, the Office will take into account the currently implemented benchmark reform assuming the introduction of a new interest rate benchmark (WIRON) and one of the objectives of this reform, which is the development of the housing loan market with a fixed or periodically fixed interest rate, which is desirable from the point of view of interest rate risk, ended in the statement.
Source: KNF and ISBnews
