Polish government to support borrowers as interest rates move higher

By Grzegorz Adamczyk
4 Min Read

The Polish government has prepared a plan to help borrowers hit by a sharp rise in interest rates, which leads to higher loan costs for banks.

The plan will include repayment subsidies for those experiencing financial difficulties, mortgage repayment holidays and replacement of the inter-bank WIBOR rate in mortgages with a new benchmark which is set to start from Jan. 1, 2023.

The Polish Monetary Policy Council increased interest rates for the seventh time in April and the main interest rate in the Polish National Bank increased from 3.5 to 4.5 percent. Economists were surprised by the move as they expected an increase of half this size. Such a decision means new increases of loan rates, which is what has triggered the government to work on a support plan for borrowers.

According to the announcement made by Polish Prime Minister Mateusz Morawiecki, support for the borrowers will be based on four propositions.

First, the government is implementing a new formula for repayment holidays. Once a quarter, the mortgage rate can be moved without charging the client with additional interest. This means that loans will not have to be repaid four times in a year. This proposition will apply in years 2022 and 2023.

The second proposition includes changing the inter-bank WIBOR index. Morawiecki said that from Jan. 1, 2023, a different index derived from the inter-bank market’s overnight deposits will replace WIBOR. He assured that the new index will be a more favorable solution for borrowers and will see banks having to reduce their profits margin by up to a sixth.

The third solution includes increased funds for the Borrowers’ Support Fund. Banks will be obliged to recapitalize the fund with 1.4 billion złoty (€300 million). Those funds will be accessible for borrowers whose monthly repayment will exceed 50 percent of their income, or if they lose their job.

Borrowers will be able to access up to 24,000 złoty (€5,160) from the fund and one-third of the support amount could be frozen. This support is intended to last for a maximum of three years.

Lastly, a new fund will be established for “increasing the banking sectors resistance.” Morawiecki explained that commercial banks will “chip in” for its functioning, as they will be obliged to transfer 3.5 billion złoty (€750 million) of their income.

Referring to the economic situation in Europe, the Polish prime minister stressed that the pandemic was a “Black Swan,” which in economics refers to an unpredictable event with severe consequences. He also stated that Poland and Europe were on their way to recovery from the economic effects of the pandemic before the Russian invasion of Ukraine.

“Since Feb. 24, we have the impression that an entire wedge of swans came in over the European skies, and we are facing challenges that we would like to have forgotten a long time ago,” said Morawiecki, adding that now a phenomenon stretches over Europe which economists call the “Perfect Storm.”

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