Expensive CHF: A problem for Poland rather than Hungary

Switzerland’s shocking departure from its intervention policy (EUR/CHF floor 1.20) immediately triggered an abrupt appreciation of the Swiss franc but also pushed two Central European currencies in the defensive – the Polish zloty and the Hungarian forint. Regional forex markets speculated that, because of the expensive franc, Hungarian and Polish households could be in difficulties because a significant portion of their loans (notably mortgages) are denominated in the Swiss currency. Is this really true and is the depreciation of the forint and the zloty (not only against the franc but, in particular, against the euro and consequently the koruna) therefore well‐founded? We don’t think so for the forint. The zloty is more at risk.

Let’s start with Hungary. Thanks to government measures, the biggest part of the foreign currency households loans (all mortgage loans and free use mortgage loans) were fixed and covered by the banks from the 1st of January. The remaining part is only around HUF230bn or EUR0.7bn, which is 0.7% of GDP. So the Swiss National Bank's decision has only a marginal effect on Hungarian loans and banks. Only consumer loans and car (FX) loans are affected by the decision (around 0.3% of GDP).

For Poland, the situation is less optimistic but thanks to the National Bank of Poland’s ban on granting foreign‐currency mortgages (imposed a few years ago), it is not that dramatic. The situation will also improve over time. Like in Hungary, mortgages in the Swiss currency were very popular in the past, climbing to slightly less than 12% of GDP in 2009 (see graph). Currently, outstanding CHF loans amount 8% of GDP. Fundamentally, the Swiss exit is therefore a much greater problem for the zloty and the Polish economy than for Hungary and the forint. Hence the rapid appreciation of CHF (if maintained) poses a risk for the zloty. That risk is even bigger because of Poland’s extremely low inflation (‐ 1.0% y/y for December) which raises the likelihood of another rate cut by the NBP and makes the Polish currency less attractive.