ASIDE FROM THE CONVERSION OF SWISS LOANS AT A "FAIR" EXCHANGE RATE, The Polish presidency proposes the law of giving in payment

• The lobby group, displeased with the draft

While in Bucharest, on Friday, Swiss franc borrowers have protested against the NBR claiming that the central bank does not represent the consumers' interest, Poland's Presidency has proposed a draft law for the conversion of zlotys of mortgage loans with an equivalent value of 42 billion dollars.

The conversion program, which has to be reviewed by the banking regulatory authority before being sent to the Parliament, stipulates requiring to banks to accept the payment of the installments at "fair" exchange rate, if the parties do not agree on their voluntary conversion, according to the statements of Maciej Lopinski, advisor to president Andrzej Duda.

The cost of the program for banks will be assessed by the regulatory authority, said Lopinski, who stated that the "fair" exchange rate will be established individually for each borrower, based on a special formula, and will be calculated by comparing the cost of zloty loans to that of foreign currency loans, in order to equalize the costs.

Aneta Fran-Adamek, a lawyer with the Polish presidency, has mentioned that the borrower will be allowed to hand over their property used as collateral for the loan, to cancel the mortgage, without any additional cost.

The Polish lobby group for the conversion has expressed its anger over the Presidency's project, claiming that "it doesn't include a calculation of the cost". Maciej Pawlicki, the representative of the group, stated: "The draft law includes a complicated algorithm, which presents the calculation of the conversion at a fair exchange rate.

According to this rate, neither zloty debtors, neither those in foreign currencies are privileged one over the other".

Also, Pawlicki stressed that the draft law does not include the cost that the banks will incur on the conversion.

Through the new proposal, Poland follows the example of other countries in Eastern Europe (Hungary, Croatia) which have converted mortgage loans to foreign currencies, including to Swiss francs, after the rise of this type of loans prior to the financial crisis of 2008. Even though initially, those loans were advantageous due to the low interest rates, they have subsequently hurt the borrowers, as a result of the fluctuations of the franc. The situation blew up in January last year, when the Bank of Switzerland decided to remove the minimum threshold set for the exchange rate (1.20 francs/Euro), leading to the heavy strengthening of the Swiss currency.

The law concerning the conversion of foreign currency loans to Poland's currency will increase the banks' expenses, which will also be affected by a new asset tax, amounting to 4.4 billion zlotys (1.1 billion dollars), recently passed by the Parliament in Warsaw. In this context, the shares of "PKO Bank Polski", the biggest bank in Poland, dropped 4.1% on Friday, to 23.96 zlotys, and those of "Bank Pekao", the second largest bank in the country, 3.1%, to 136.50 zlotys.

The governor of the Polish central bank, Marek Belka, warned, last week, that this combination between the new tax and the loan conversion can endanger some of the banks and can also affect Poland's economy.

• The zloty, which was being traded at approximately 2 units/franc in 2008, is now trading at almost 4 units/franc.

• S&P has cut Poland's rating and criticizes the weakening of the institutions

Financial ratings firm Standard & Poor's Ratings Services cut Poland's sovereign rating a notch on Friday, estimating that several laws passed by the conservative government have led to the weakening of key institutions, a press release of the agency informs. The rating for long term debt has been cut to "BBB plus" from "A minus", while the rating for long term debt in the local currency has been cut to "A minus" from "A". Furthermore, the outlook for these ratings has been set to "negative", which means that S&P could decide a new downgrading of Poland in the coming 24 months if public spending and monetary policy deteriorate.

"The downgrade reflects our opinion that the system of the separation of powers in Poland has been significantly eroded and the independence and effectiveness of key institutions, such as the Constitutional Court and Public Television, has been weakened by various legislative initiatives passed after the October 2015 elections", the ratings firm states.

Standard & Poor's warns that it could decide a further rating cut for Poland if it thinks that there is the possibility of the independence, credibility and efficiency of some key institutions being further eroded, especially of the National Bank of Poland. Also, the rating could be cut if public finances of Poland deteriorate above the current base scenario as the imbalance between revenues and expenses is deepening.

The Law and Justice conservative party won a decisive victory in the legislative elections in October with a series of promises which include the lowering of the retirement age, allowances of 500 zlotys a month (126 dollars) for children, tax exemptions and free drugs for the elderly. The Law and Justice party, which currently has the most significant majority in the parliament since the fall of communism in Poland in 1989, has already said that it will allow the fiscal deficit to increase to 3.2% of the GDP this year as well as the next, in order to finance the welfare measures.