Profits and Risks of Foreign Exchange Mortgage Loans: Case of Poland

Abstract

This paper describes phenomenon of using of foreign currency mortgage loans for housing purposes in Poland. Such phenomenon appeared also in other developing countries of CEE (e.g., Hungary, Romania, Croatia, Serbia, Bulgaria) but at different scale, scope and consequences. The aim of this paper is to present the major issues of foreign currency mortgage loans in Poland, the conditions and reasons of their spreading, their relative benefits and costs and characteristics of risk created by such loans for whole banking system in Poland. In the paper, the author will enclose the results of data analysis for Polish financial system, mortgage loans market, as well as foreign exchange rates. The paper will contain also the author’s analysis of effectiveness of repayment of fx mortgage loans (CHF and EUR) in Poland versus PLN loans. The results of the author’s research in general demonstrate that foreign exchange mortgages benefits depends primarily on the exchange rate on the date of taking the loan. The main conclusion from the research is that foreign currency mortgage loans are relatively beneficial but they create significant potential risk to the economic safety of the Polish households as well as whole banking system.