(Bloomberg) -- Poland’s financial regulator warned that the festering legal controversy over Swiss franc mortgages, which already forced local banks to set aside about 40 billion zloty ($9.3 billion) in provisions, may spillover into zloty-denominated home loans.

Speaking in an interview with PAP newswire, Jacek Jastrzebski said the litigation is creating “a widespread perception that you can find something in the contract that will be an excuse not to repay the loan or to pay it back without interest.” 

“A whole legal infrastructure, firms were created and became, in a sense, factories to handle client lawsuits against the banks,” the head of the regulator known as KNF said. “This growing awareness is infecting” zloty mortgages.

Polish courts have been flooded with more than 100,000 lawsuits from borrowers who saw their payments balloon following the surge in the Swiss currency. Most got their loan contracts annulled. 

After the recent, steep rise in interest rates, some zloty borrowers also started questioning mortgage agreements, especially those with Wibor interbank rate as a benchmark. About 95% of the “several dozen” requests to suspend payments failed in courts, according to Polish Banking Association. 

Poland Is Working to Fix Swiss-Franc Loan Saga, Minister Says

The financial regulator has recently floated a proposal that would force all lenders to offer conversion of Swiss-franc mortgages to zloty. It’s not clear if either the government or the ruling party will be ready to sponsor the bill. Jastrzebski reiterated a “systemic solution” was needed to “put out the fire” where it started.

“We should all draw conclusions from the Swiss franc case,” he said. “Unless we act quickly and decisively, the situation may get out of hand.”

(Updates with details in the 4th and 5th paragraph.)

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