Weekly Briefing, Vol. 51. No. 2 (PL) May 2022
Support programme for consumers and for the promotion of savings
Summary
Poland is recording record levels of inflation. In April it amounted to 12.4 per cent compared to last year – the highest in 24 years[i]. In order to stop the rising inflation, the Monetary Policy Council of the National Bank of Poland (NBP) has recently increased interest rates for the eighth time in a row, which has resulted in a huge increase in loan instalments for borrowers. The drastic increase in the cost of credit repayment (in many cases by as much as 80 per cent over one year) has worsened the situation of many households. The creditworthiness of Poles has also decreased and, consequently, the number of new loans being taken out has fallen. This has caused a major slowdown in the real estate market. In order to counteract the deterioration of the material situation of borrowers, the government proposed solutions to support them – such as loan holidays, increasing the Borrowers Support Fund or changing WIBOR (the reference rate for loans on the Polish interbank market), which would reduce the interest rate on loans. The costs of these solutions are to be covered by banks. The government has also announced new solutions to increase the level of savings.
Introduction
Prime Minister Mateusz Morawiecki announced in May the adoption of a support programme for consumers. It is to include, among others, four months of credit holidays this year and four next year. – The benefit for Poles is about 650 million euros, the prime minister said[ii]. There are also plans to increase the Consumers Support Fund and to make it easier to apply for aid from it, as well as to change the current WIBOR rate, following agreements with financial institutions. Repayment of mortgage loans is, as the Prime Minister pointed out, the problem of over 2 million Polish families.
Banks to support citizens
The Consumers Support Fund is already to be 450 million euro this year. So far it has been EUR 129 million. The costs of its increase are to be borne by the banking sector. As Finance Minister Magdalena Rzeczkowska stressed, banks will be obliged to inform customers who have problems with loan repayment about the Fund.
As Prime Minister Morawiecki pointed out, it is unacceptable for financial institutions to behave in a way that, because the central bank raises interest rates, they record very high profits and “are incapable of sharing these profits with the citizen”. He said that the changes the government is proposing are shifting money from banks to citizens. – This is the money we are shifting from banks to citizens, the banking sector earns a lot, just look at the results of banks in the first quarter, which are absolutely record-breaking. For me, the most important thing is the Polish people, and that is why we are moving this money from the banks to the citizens. It is in the interest of banks that citizens survive this crisis in the best possible condition. This is not against the interests of the banks, it is against the short-sighted interests of the financial sector. It is in the interest of the entire economy, of which banks are a part,” the Prime Minister added.
The Prime Minister also announced “savings solutions”. – We are working on these solutions, (…) such information will be provided to you in the near future regarding the savings package or solutions that are to encourage and support setting up deposits and saving by Poles,” Finance Minister Magdalena Rzeczkowska added.
In May, the Monetary Policy Council (MPC) of the National Bank of Poland (NBP) announced an increase in interest rates for the eighth time in a row. One of the most important consequences of such actions is the increase in interest rates on loans, and thus higher instalments. Rising interest rates and greater restrictions on calculating creditworthiness have contributed to a collapse in demand for housing loans. In April, in just one month, the number of people applying for such financing fell by almost half. The specially calculated index of the Credit Information Bureau was at its lowest level since April 2009.[iii]
Demand for credit will not increase quickly
Experts point out that it is difficult to expect a better situation on the real estate market in the following months. They point out that the value of the demand for housing loans in the months to come will be influenced primarily by the NBP’s monetary policy. Further tightening of the policy and an increase in interest rates will further reduce the creditworthiness of potential borrowers and thus will greatly weaken the demand for housing loans. Currently, the main interest rate at the National Bank of Poland is 5.25%. Bank economists are quite unanimous in expecting rises to at least 6.5%, and there are also predictions at the level of 7.5%-8.5%. The financial market is already pricing above 7%.
For borrowers, the vision in which the NBP reference rate rises further to 7 percent means a lot of trouble. Especially for those who took out loans at rates close to zero during the pandemic. In such cases, their loan instalments are already higher by around 80 per cent compared to the date of signing the agreement. Such a drastic increase of instalments is the effect of a jump in WIBOR rates, on which the interest rates of most loans granted by Polish banks are based.[iv]
New savings bonds
During the Impact’22 economic congress, the Prime Minister Mateusz Morawiecki also announced the introduction of two new types of savings bonds. These are to include new one-year bonds with interest rates at the level of the central bank’s reference rate, currently 5.25 percent. – I want to talk about a good proposal from the Finance Ministry, we are implementing new types of bonds that will be beneficial for Poles and will set a benchmark precisely so that big financial corporations are not the ones to benefit from the ongoing economic turbulences, PM Mateusz Morawiecki said.
He added that “besides, there are bonds with higher interest rates that are already available, but we will promote them more widely, not only in the PKO BP bank network, but also in other banks.” – The network will be expanded to 1.5 thousand outlets, and the bonds will be available for purchase over the phone and via the Internet. These will be bonds protecting Poles against inflation – said the head of government.
The Prime Minister Morawiecki’s appeal to banks
Earlier, the head of the Polish government assessed that there is a group of entities that earn money from the current inflation crisis, and these are banks and financial institutions. He also appealed to the presidents of banks: – Colleagues, rebuild yourselves, it cannot be so that 268 billion euros of current deposits are bearing interest at 0.1-1 per cent – said Morawiecki, who in the past headed BZ WBK bank.
The head of government also said: – It is an unhealthy economic model when a very well-capitalised financial sector is the beneficiary of this inflation. Morawiecki stressed that such low deposit interest rates occur not only in Poland, but also in other Central European countries. The Prime Minister pointed out that he had met with the management of “the largest financial institutions” and they were reviewing the situation. – I know that there, too, there is a deep reflection on the fact that deposit interest rates should go up in a very short time,” he said. [v]
Conclusion
The Polish government has announced broad measures to improve the material situation of Polish borrowers, who are suffering from the effects of interest rate rises by the National Bank of Poland’s Monetary Policy Council, which are affecting loan instalments. The MPC’s actions, in turn, are a response to the record and continuously rising inflation. The government programme may temporarily improve the situation of many Polish families who have taken out housing loans. It is to be financed by the Polish banking sector. However, according to many economic experts, the government’s actions to support borrowers are contrary to the National Bank of Poland’s anti-inflationary policy and may prolong the inflationary rise.
[i] Portal Stock Watch https://www.stockwatch.pl/wiadomosci/gus-inflacja-wyniosla-124-proc-r-r-w-kwietniu-konsensus-123-proc-r-r,gospodarka,297302
[ii] Portal Business Insider https://businessinsider.com.pl/twoje-pieniadze/pomoc-dla-kredytobiorcow-coraz-blizej-rzad-zdradzil-szczegoly/w5hw572
[iii] The Money.pl Portal https://www.money.pl/banki/tak-zle-z-kredytami-nie-bylo-od-13-lat-piorunujacy-efekt-podwyzek-stop-i-regulacji-6765580419459872a.html
[iv] The 300Gospodarka Portal https://300gospodarka.pl/news/stopy-procentowe-nbp-rpp-w-maju-w-gore-co-to-oznacza-dla-kredytobiorcow
[v] The TV TVN24 Portal https://tvn24.pl/biznes/z-kraju/premier-mateusz-morawiecki-zapowiada-dwa-nowe-rodzaje-obligacji-oszczednosciowych-5706551