(Bloomberg) -- Investors knew a European Union ruling was coming, but they didn’t know when. Now that there’s a date, the risks to the zloty have become all too real.
The European Court of Justice on Friday said it would decide on Oct. 3 if Polish banks maintained abusive terms in foreign-currency loan agreements. The zloty dropped the most since May 2018 against the euro that day, bringing the week’s decline 1.2%, the worst in more than two years.
“Investors worry that the ruling may be negative for Polish banks, which may translate into lending curbs and slow down private consumption - the engine behind Polish economic growth,” said Rabobank strategist Piotr Matys, who warned earlier this month the zloty may fall.
The currency ended the week at 4.3738 per euro, the weakest level since August.
A decision in favor of borrowers could cost the industry about 60 billion zloty ($16 billion), the equivalent of four years of the industry’s income, according to the Polish Banking Association. The country’s lenders have $32 billion in non-zloty loans, mostly mortgages in Swiss francs.
If that happens, there probably “won’t be enough demand for zloty, which may mean the 4.40 per euro level will be breached,” Matys said.
To contact the reporter on this story: Adrian Krajewski in Warsaw at akrajewski4@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Wojciech Moskwa
©2019 Bloomberg L.P.
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