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Zloty depreciation threatens mortgage book

Some market observers see weaknesses in PKO BP’s retail business. About 40% of the bank’s mortgage portfolio is denominated in foreign currency, mostly funded through the wholesale markets, including via short-to medium-term derivatives, according to Moody’s the bank also raised five-year bond funding this year in euro, €800 million; and Swiss francs, SFr250 million. PKO BP had an impaired loan ratio in mortgages of 3.3% at the end of the third quarter. Asset quality in foreign-currency mortgages was slightly better than in zloty mortgages. But analysts worry that this might deteriorate given the recent rapid loan growth and the depreciation of the zloty against the euro and particularly against the Swiss franc.

In 2011 the zloty fell 15% against the Swiss franc. Roughly 70% of PKO BP’s foreign-currency mortgage portfolio is in Swiss francs. Mortgages make up the biggest portion (46%) of PKO BP’s retail loan portfolio, which in turn makes up about two-thirds of its total book. Foreign-currency mortgages make up about 25% of PKO BP’s total loan portfolio.

Retail chief Szymon Walach acknowledges that bad debt is increasing in the foreign-currency mortgage portfolio. But chief executive Zbigniew Jagiello says even if zloty-Swiss franc rates doubled, it would not “considerably influence” the bank’s profitability.

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