At the beginning of 2000 and in the next few years, foreign currency loans, including mortgage loans and cash loans, were very popular among borrowers. This was due to the lower interest rate on such financial liabilities.
However, along with the huge increase in exchange rates, primarily of Swiss francs, banks in Poland tightened the criteria for granting foreign currency loans. Currently, only a few customers can receive them. Who can get them and is it still a profitable option?
Foreign currency loan – in other words, foreign currency loan
The definition of credit as indicated in art. 69 of the Banking Law (the Act of 29 August 1997 – Dz. U. 2019. 0.2357) defines the loan agreement as an agreement in which the bank undertakes to make available to the borrower for the period of time specified in the agreement the amount of cash intended for a specific purpose, and the borrower, in turn, undertakes to use it under the conditions specified in the contract.
The customer must return the amount of the loan used together with interest on the specified repayment dates and pay a commission on the loan granted. The loan agreement must include loan amount and currency. If it is a currency other than Polish, then we are dealing with a foreign currency loan.
What is a foreign currency loan? These types of loans are also called foreign currency loans. These are liabilities that are granted in a different currency than the one in force in a given country. In what currency is the currency loan granted? In Poland, it is most often a loan in euros, in Swiss francs, British pounds or in US dollars.
A characteristic feature of foreign currency loans is that they usually have lower interest rates than zloty loans due to low-interest rates in other currency zones.
Acts regulating the granting of loans in foreign currency
The basic legal act regulating foreign currency loans is the Banking Act of 1997. It was amended on July 29, 2011, as a result of which a new provision regarding foreign currency loans appeared in it. On August 26, 2011, the Act of July 29, 2011, amending the Banking Law Act and some other acts came into force in Poland. Of Laws No. 165, item 984, called the anti -read act.
In art. 69 point 4a of the Banking Law, it was indicated that in the case of a loan agreement denominated or indexed to a currency other than the Polish currency, the loan agreement should contain detailed rules for determining the methods and time limits for determining the exchange rate, on the basis of which, in particular, the loan amount, its tranches and principal and interest installments and the rules for converting the payment or repayment of the loan into the currency.
The same amendment to the Banking Law meant that in the case of credit agreements denominated or indexed to a currency other than the Polish currency, the borrower may repay principal and interest installments and early or partial repayment of the loan directly in that currency.
An important legal act regarding foreign currency loans, or rather their repayment, is also Resolution No. 391/2008 issued by the Good Finance Investment Corporation regarding the adoption of Good Finance (II) concerning good practices in the field of mortgage-secured credit exposures.
Thus, the GFIC attempted to counteract the practices of banks regarding the determination of spreads significant when repaying foreign currency loans. From now on, based on a resolution of the Good Finance Investment Corporation, each bank should allow the customer, at his request, to repay the installments in the index currency with a loan indexed with a foreign currency rate.
In connection with Good Finance (II), as of January 1, 2009, banks are required to inform clients about currency spreads and risks related to them, as well as to make available to clients historical exchange rate lists. Good Finance specified that the bank should not use currency spreads other than standard rates used for products and transactions.
In what foreign currencies do banks grant loans?
In Polish banks, foreign currency loan offers are marginal to loans in Polish currency. All this is due to major changes in the system for granting such obligations. Currently, you can still enlist:
- currency loan in euros,
- foreign currency loan in US dollars,
- foreign currency loan in Swiss francs,
- foreign currency loan in British pounds.
It is worth adding that a foreign currency loan can only be granted if the borrower receives income in the currency in which he wants to make a commitment.
What types of loans are granted in foreign currency?
As a rule, loans granted in foreign currency relate only to two types of loan obligations: foreign currency mortgage loans and cash foreign currency loans.
Cash foreign currency loan
Earning abroad in foreign currency means that the borrower will usually only be able to get a foreign currency cash loan from a Polish bank. Unfortunately, few banks offer currency cash loans – their provision is risky for these institutions.
All because the bank would have limited possibilities of pursuing claims if the borrower stopped paying off his liability. When applying for a foreign currency loan, the customer must earn in the same currency in which the loan is offered and have adequate creditworthiness.