Financial risk management is a global issue

The story unfolding in Poland, with politicians running electoral campaigns based on promises to curb bank profits, could have a profound effect on other countries, depending on the outcome.

We casually talk about the global economy, and how one venture outside of our borders can have a dramatic effect on our financial health.

The story began during the financial crisis of 2008, when Polish banks were largely insulated from the global recession due to their strong fiscal management policies and the financial management tools offered to customers. At that time, many Poles took advantage of the Polish currency’s strength (zloty) against the Swiss franc and financed mortgages in the Swiss currency Today, that balance is reversed; the Swiss central bank abandoned caps on the franc’s value earlier this year. As a result, the franc became stronger, with the move affecting more than half a million Poles who now find themselves paying much more for their mortgages.

This has created a hot debate leading into the 2015 election. Poland’s Law and Justice Party is running on a platform that could potentially cost Poland’s banks more than what they made in profits last year. The party says that Polish banks should bear all of the costs of converting the $39 billion Swiss franc mortgages to ones based on Polish zlotys, giving citizens some financial relief. The party argues that the banks reaped a windfall profit without disclosing the risks involved to its customers.

As a result of this movement, Polish lenders have lost at least 14 percent of their value and the country’s GDP growth is projected to slow. While banks are still expected to meet the regulatory requirements of liquidity, if campaign promises are fulfilled, eleven major banks will experience losses exceeding their gross profits, resulting in capital limitations for future lending.

The movement in Poland isn’t isolated. Slovenia and Hungary decided earlier this year to convert Swiss franc loans into local currencies, giving their citizens some relief. Neither country had as much of a financial stake as Poland. So what will be the global ripple effects if Poland’s banks are held accountable for this risk?

We’ll be watching closely.