Sharing Risk S, Not Benefits

Sharing risk`s, not benefits

FX lending to uncovered non-professional lenders in Poland 2005-2009.

by Tomasz Sadlik

President of the Financial Institutions` Clients` Defence Association PRO FUTURIS

for the Social Economic Commission of the UE

Brussels, on June the 7th 2016

I was invited to present the situation of nearly a milion of households and small businesses in Poland having faced the mass FX loans offers by international banks present in this country. My presentation is based on both personal experience and the data provided by the banks themselves, the Polish Authority for the Protection of the Consumers Rights UOKiK, of which the representative is here today with us and I would invite her to present some details of its actions adn some legal data from the attorneys who work with us, of which one, Mr. Mariusz Korpalski, is present here today.

Background and history. The FX-based lending has taken place propulsed by the bank sector back in the 80`s, even though this kind of product had been offered earlier to professional borrowers across the world which is duly described in the academic and scholar materials for the future financial experts in the USA, a mong others. I would not stop by this as my colleagues would surely describe the Australia case and some more. The first known EU lending came from Italy in the 90`s of the XXth Century. The Italian banks suffered heavy losses when forced by the Government to get back and denominate those credits. Then some Swiss banks brought them into Austria in the years following the 2000. Borrowing in Swiss Francs was described by those banks to clients as safe, cheaper than the local currency based borrowing, good deal, no risk. Facing this kind of offer, the Austrian banks followed. Then in the early 2000, especially since Poland entered the UE by the year 2004, the banks in Poland started to offer this products. First was the aggressive Raiffeisen Bank International, which, led by an unscrupulous CEO, Mr. Stepic, offered this product to the small businesses and then quickly to households. The other banks present in Poland had to follow, except two of them, one Italian, of which thhe owners recalled their earlier losses in Italy over the same products and one Polish conservative bank. Over 900.000 such loans has been granted between 2004 and 2010. The were offered as cheaper, safe, no risk involved. I myself received an e-mail from Raiffeisen Bank agent in which she stated that I would pay some 100 euros per month of installements less if I took a Swiss Francs denominated loan, than if I took it in Polish currency. Investigated by the Court and Attorney she and her colleague from the same bank confirmed that the informatic system the bank to be used by its employees and agents did not take into account any future change over the Swiss Frank/Polish Zloty pair. The risk was not existent, so they could state to clients, calculating their income and financing potential, that this was a stable and cheap product. It seems that Raiffeisen Bank and its fellows really did not estimate the risk, neither for them, nor for their clients. In a letter which Raiffeisen Bank International`s Managers sent to the Polish Parliament Upper Chamber Commission as their official stand over a Law proposed to denominate back those credits, they say, I quote: "Poland is not in a state of economic crisis, its currency is stable and no objective economic factors exist that would justify such profound intervention as provided for in the Act" [i] It was stated by mid-August 2015. Let us recall that earlier that year, on 15th of January, the "Black Thursday" made Polish zloty`s value get down from 3,45 per Swiss Frank to 5,15. Then went gradually back to a higher 3,99 – 4,10, which is more or less its current value. Starting from 1,8 back in 2008, the year of the most aggressive sales of this product by the banks.

Action. The international banks operating in Poland has known the product and the risks and incomes involved very well from their previous experiences. The FX loans wer cheaper because of the cheaper LIBOR over the Warsaw WIBOR Index by up to 3 percentual point. The bank`s margins were reduced. The banks` employees and agent`s were offered higher commissions over this product. The Polish Financial watchdog, KNF, was voicing its concerns over to banks only. No official statement or public warning was issued until 2014 when these products (there are two of them, in fact) were prohibited to offer to persons not earning in Swiss Francs in Poland. The Clients` Protection authority stand still, deprived of even the basic tools to prevent it. No public warning neither. The aggressive selling, risk-hiding, massive marketing incentives made this product a kind of fashionable, especially for those believing the then Prime Minister Donald Tusk, "selling" the perspective of Poland coming into the euro zone soon, had known the support of all of the renowned economists of the time voicing free market and liberties. And that of the political parties, mobilised by the bank lobby. The banks were thus free to act and encouraged to do so. Their social credibility, political and academic support, provided, the latest by a series of professors, majority of which had been taken abord by the banks as their Polish Branches` Boards Members, highly paid advisors or otherwise those-to-be-ones, was another pilar of their success in this and other stories. Let us recall that investment in the banking sector in Poland has been one of the most profitable over the last decade, paying off as high as 30% of the shareholders` original actions per year. The Polish laws, made up to help State-owned banks stand still, all clear and protected from any client`s claims whatsoever, as part of the system during the socialist era, did grant banks a highly unusual protection, unseen in other countries. The ideal anti-customer system was there, the steams up and ready to run with no possible problems in sight. And the banks did it. Ignoring all risk and warnings, by the end of 2008 the Raiffeisen Bank`s loans` structure in Poland ended up split between the low cost, low margin and aggressively sold Swiss Francs` denominated loans (90%) and the local currency based loans (10%).

Crisis. It was not before the end of 2008 and beginning of 2009 that the clients started to realise the problem they had. After the Crisis, let us recall a bank and financial institutions` induced one, started, the Polish currency suffered a first blow. Polish zloti went down, devaluated by some 70% in several months. The clients started to suffer, paying suddenly that much more for their loans. By that time as an example, one of the famous and reputable economists, profesor Ryszard Petru, Leszek Balcerowicz School pupil, voiced some early concerns but assured all borrowers publicly that these loans would long stand cheaper than the local currency based ones. By the time he declared it, he had had two months earlier converted his own FX Loan into Polish zlotis` based one. By 2010 the was a first class action agains one German owned bank, which is due to end soon now, after 6 years of legal battle over it. By 2011 a first serious attempt to help the banks` clients has been made. A new Law has been voted letting them pay directly their installments in Swiss Francs, rather than pay in zlotis, which banks would convert adding an extra of between 2 and 9% of their exchange fee on top of it. That was supposed to resolve the problem, as far as the Governement was concerned and the media voicing a massive Alleluia over it. None of the administration supposed to react over the contractual abuses and the misselling committed by the banks. Several punctual actions by UOKiK administration had banned some crucial point inside those and similar contracts, but affected only two banks forcing them to change those in their future contracts…. . Several individual legal actions were successfull but the banks imposed a confidentiality clause over these and over those claims correctly built enough to scare them and pay off their unduly gains from these contracts.

Battle. In 2013 started to battle for justice with the bank when I constated the abuse of which I found myself the victim. Not immediately, though, as I found no help whatsoever from any consumer protection rights` organisation or administration. I found myself having to pay twice as much as the initial rate, with my property`s for which I took the loan value halved down, my business aniquilated by the Big Crisis, my Spanish customers having faded away, my marriage destroyed two years earlier over the first problems with the installments` payment and deep depression facing. I had twice asked the bank to help, paid for it some fees, with a negative answer from it. The Raiffeisen Bank Poland had not even help me eliminate the "top", which was the zloti conversion of theirs. No answer from the customer protection bodies, unable to help local UOKiK Delegate, and a friend attorney which did call me crasy over my asking her to produce a claim against the bank over this. Mission impossible, she would say to that. It took her months to write a claim, based on the arguments from some early Spanish and French and Austrian cases which I duly translated to support it, no such Polish action offcially existing. By now I have lost all the instances, the judges ignoring the evidence, and supporting that I was an expert in economics by far prepared to know waht I had signed as a contract. No argument was taken, no evidence, testimony, investigated. The First Instance Judge advised me, in her official Court Ruling, that the only way was to change the Laws. I followed her advise. I found new evidence of fraud and misselling. I organised some meetings, got to know lawyers able to battle the banks` ones, some politicians, including the then banned to opposition and now ruling Law and Justice Party, the same which protested in 2007 over any attempt to reduce such loans in Poland. I organised a first real Association for the Banks` Clients Defence and stood out with a few more, by September the 14th 2014 outside the Financial Watchdog siege, to protest over their negligence and lack of help and warning of more crisis and problems to call. There was no response whatsoever. My warning, voiced again and again that autumn and winter of 2015 went by ignored by the Tusk Government and the administration. Then the January 15th came and millions of Poles found themself in an impossible position to repay up to 250% of their initial installments. The authorities did little, the banks reacted slowly and reluctantly offering a help which would help nothing indeed in many cases. Then many people came to join me. We organised marches of protests, started to actively lobby back against the banks and rising the real dramas people had been suffering. That was an election year, so the ruling Party mobilised itself to propose a Law, to which the banks reacted histerically, claiming up to 90 billions of euros of losses plus a financial system destabilisation in case it would be voted. Te CEOs and owners of those banks voiced their concerns over their losses forgetting the huge gains they had made in a very unfair and fraudulent manner. As the Raiffeisen ones and I would strongly recommend this Commission just to read the several pages of it to realise how grotesque the attempt was and how daring their arguments were as compared by the mere facts. The Law has been suspended. The new President-elect, Mr. Duda, which had officially promised us a new Law solving our problem, repeated his promise and a commission has been set up to prepare it. Due in three months after his election in June 2015, the Law is still no there. There has been some changes though. New Laws of Consumer Portection has been voted, new administration put in place, class actions followed and the Supreme Court declared null and void the banks` right to issue their execution documents without any judicial control over it. The new laws letting you to go bankrupt and, loosing the property, repay some of the income part over 3 to 5 years. Public awarness of the problem grew. UOKiK and the new consumer protection are in place, actively working to help us solve the problem with the up-to-now omnipotent banks and their lawyers. There are now 5 associations as tha one I did found – Pro Futuris. The unoficial Polish "Sheriff", Mr. Jarosław Kaczyński, had reiterated that he would help. Some time in future.

Victory? We should not to wory then, should we? Yes, we should, would be my answer. The legal actions are very long, the time to come up to the Supreme Court and have its judgement in Poland is some between 5 and 10 years. The latest Law proposal wants to exclude small businesses from the solution, as well as those of which the contract has been annulated by bank asking for property and money. My ex-wife did declare bankrupcy, took the property, due to be sold by half of its initial value soon and repaying the bank. I was left with the Bank Execution Title twice the initial loan` value, facing the loss of the second property, in which I used to live with my new wife and a 3-years` old son. Having repaid half of it in 5 years. I got 600.000 zlotis of loan. Repaid 300.000. The bank would sell the property with my ex-wife for some 300.000 zlotis. She has beeb paying half of her income for a year now, facing 4 more to come, totalling some 120.000 zlotis. And the bank wants still 1.350.000 zlotis from me, including a 400.000 zlotis worth flat of my own plus 75 euros of interests over it which it is legally entitled to if did not consider the snall ex-wife-of-mine-bankrupcy-detail. And I found myself in economic exile over it in Spain, writing more novels as I hope to get some job. There is a small chance to get a 3-months` reception contract in a Costa Brava hotel starting soon. Then, we`ll see. I did write my first fiction book in Spanish, though as my possible farewell to Poland, though.

Tomasz Sadlik

Interpreter, writer, ex-Aragonian Government representative for commerce in Poland.

www.profuturis.eu

[i] http://www.senat.gov.pl/gfx/senat/userfiles/_public/k8/komisje/2015/kbfp/materialy/1048_rb.pdf