Will it be like it was? NBP’s reservations will stop competition in loans
The Polish Financial Supervision Authority proposed to take into account the NBP reference rate when determining the interest rate on mortgage loans. The National Bank of Poland has reservations.
Statistics expose reality. According to the latest data from the European Central Bank, the average interest rate on new housing loans in Poland is approximately 6.18%. Pity. In the euro zone, the average interest rate is much lower – in Bulgaria or Sweden, the rates are more than twice lower than in Poland. In the Czech Republic too.
According to the Polish Financial Supervision Authority, the situation could change for the better after taking into account the NBP reference rate when determining the interest rate on mortgage loans in Poland, but the National Bank of Poland is not enthusiastic about this idea. He considered it risky. Why?
Difficult market realities in Poland. The Polish Financial Supervision Authority noticed an opportunity to change the situation
Poles know how to count, which is why they began to see the high interest rates on loans as simply a conspiracy of the banks. The Office of Competition and Consumer Protection did not share these concerns. He explained that similar rates and margins of banks result from free market competition and the same macroeconomic realities, and not from an unlawful arrangement between banks.
What are the realities? Banks attribute expensive loans to the high tax burden in Poland, the higher risk of doing business than in other countries (the suspension of repayment of loan installments introduced by the Act), contributions to the Bank Guarantee Fund (BFG) and a specific banking tax.
Since these circumstances apply to all banks operating on the Polish market, the lower limit of profitability and the amount of margins are at a similar level, very close to each other.
However, the Polish Financial Supervision Authority (KNF) saw an opportunity to increase competition between banks, which could have a motivating influence on banks’ decisions.
A new, but not new, idea of the Polish Financial Supervision Authority. Many countries use the reference rate
To clear the air and give Poles a chance to receive more transparent information from banks, the Polish Financial Supervision Authority proposed to take into account the NBP reference rate when determining the interest rate on mortgage loans in PLN, or the reference rate of the central bank of the country appropriate to the loan currency.
The reference rate is the main interest rate set by the Monetary Policy Council (MPC). It is a reference point for the entire financial system in Poland and determines the overall cost of borrowing money in the economy.
The new market standard is to be determined by the solution of setting the loan interest rate as the sum of the central bank rate and the bank’s margin. Moreover, Poland is not setting a completely new path – such a solution is already in force in many European countries: the Czech Republic, Denmark, Germany, Austria, France, Sweden, Portugal, Hungary, Cyprus, Malta, Ireland and the United Kingdom.
Therefore, the Polish Financial Supervision Authority is of the opinion that this solution has the potential to bring competition between banks in Poland to the margin level – to the benefit of Poles.
Limited scope of the NBP guarantee. Fewer loans with fixed interest rates?
However, the National Bank of Poland has reservations about this idea. The main reason is the changing conditions of monetary policy, the level of individual NBP interest rates, but also their definitions or economic significance. Such a situation cannot be ruled out in Poland. “We cannot also rule out a scenario in which in the future the central bank would completely stop determining and announcing information on the NBP reference rate,” the NBP emphasized in a statement to PAP.
It turns out that the National Bank of Poland “cannot guarantee the certainty and continuity of determining or publishing the NBP reference rate – in accordance with its current definition and based on current practice, or other NBP interest rates, especially in the long-term horizon of mortgage loan agreements,” the central bank informed.
According to the National Bank of Poland, banks will have problems with providing information to customers regarding, among others, “the essence and method of determining the central bank interest rate, or the reasons or circumstances that may lead to its changes, directly affecting the amount of loan installments.” Such a situation would reduce the willingness of banks to offer mortgage loans with a fixed interest rate.
According to the NBP, an alternative to the use of NBP interest rates in mortgage loan agreements could be indicators based on data from the conditional transaction market.
