Opinion of the European Systemic Risk Board of 1 September 2023 regarding the Polish notification of higher risk weights set for immovable property pursuant to Articles 124(2) and 125(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (ESRB/2023/8)

The European Systemic Risk Board has issued an opinion in response to a notification from the Ministry of Finance of Poland regarding measures related to existing foreign currency housing loans. Specifically, Poland plans to extend a measure introduced in March 2022 to limit the additional risks associated with these loans by setting – or better maintaining – appropriately higher risk weights for housing loans secured by both residential and commercial property which are denominated in currencies other than the Polish Zloty (PLN). The ESRB contends that it does not object to this extension, which will subsequently last for an additional 24 months.
Under this measure, risk weights for EXISTING foreign currency housing loans are increased and vary depending on the extent of loan loss provisions, write-offs, or adjustments made in connection with settlements. The measure comes as a result of a European Court decision earlier this year and several Polish court decisions prior to that, which deemed such housing loans as violating consumer protection laws and thus deemed any such arrangements as void. Hence, institutions with such loan agreements must enter into settlements with clients, thereby facing significant litigation and settlement costs. The purpose of the measure is thus to address these higher risks and to encourage financial institutions to settle their issues with clients by converting any such existing loans into PLN loans. The ESRB acknowledges these concerns and supports the measure as a means to reduce legal risks and promote financial stability in Poland.
To conclude, the ESRB emphasizes the need for continuous monitoring of the situation and periodic reassessment of the appropriateness of risk weights (at least annually) to ensure they reflect actual risks faced by affected institutions.