Recently, rising inflation and increasing loan instalments have been one of the most frequently discussed topics. The latter concern more than 2.5 million people and the total value of loans as of the last quarter of 2021 was estimated at approximately PLN 500 billion.
A loan as a banking product is by definition interest-bearing, and recently, there have been signs of increasing questioning of mortgages contracted in PLN. Among other things, the WIBOR index and the way it is determined are being called into question.
Borrowers dissatisfied with rising instalments – just like Swiss-franc mortgage borrowers before them – are now seeking grounds for invalidating their agreements or circumstances on which to base their claims. Most often, the borrowers’ claims reflect a lack of awareness that the loan instalment may increase, though the mechanism for setting the interest rate is also being questioned. Borrowers accuse banks of setting WIBOR at a level that is unjustified as not based on real transactions, and also of adding an unfair surplus between the WIBOR value and the real cost of money into the loan margin. According to borrowers, banks can influence the index, as they have an interest in making it as high as possible.
It is worth beginning with an explanation of what WIBOR actually is. WIBOR is a benchmark expressed as a percentage for PLN deposits on the Polish interbank market, published on the website of a given bank offering loans. In the simplest terms, it is an index reflecting current economic and market conditions, so by its very nature it is subject to change.
As you may know, loan agreements are regulated by the Banking Law. Specifically, Article 69 of this act stipulates what this type of document must contain in order to be valid and duly concluded. One of the points is the amount of the interest rate and the conditions for its change. In addition, it is worth noting that this type of product is provided at the request of the interested party, subject to a number of formalities related to creditworthiness, as well as the awareness of the obligation being contracted. Under the act of 12 May 2011 (later amended), borrowers are given “a number of information rights”. Applicants can in fact ask the bank about any issue related to the agreement and must be given an answer. In 2017, the Mortgage Loan and Supervision of Mortgage Brokers and Agents Act came into force, which also obliges banks to respond to loan-related enquiries. Therefore, with so many opportunities to find out about the terms of the loan, the borrowers’ claims about an information deficit seem unfounded right at first glance.
Recently, interest rates have risen significantly, which has a direct impact on loan instalments, as their amount is mostly determined based on WIBOR. Undoubtedly, the rising interest rates are an issue of concern and an aggravation for those who took out loans when WIBOR was at a record low (e.g. in February 2021 WIBOR 3M was 0.21%); currently WIBOR 3M is close to 6.5% and is forecast to rise even further. However, contrary to what borrowers claim, this is not the fault of the banks, but of the changes taking place in the economy, in particular the galloping inflation and the Monetary Policy Council chasing after it by raising interest rates.
Borrowers’ allegations to date have most often concerned vague rules for setting irregular interest rates, e.g. relating to unspecified variable parameters of the capital and money markets. However, these disputes concerned very few banking products. However, today, borrowers are targeting a rising index which is the common denominator for most PLN liabilities, i.e. WIBOR.
The current uncertainty and misinformation about the economic situation in Poland is calling into question the reputation of the judiciary and the proper functioning of the financial sector. Concluded agreements create a legal regime built for years on the basis of the Constitution, the Civil Code, applicable statutes and international law. It is also worth stressing that the banking and financial sectors are the most regulated economic sectors in Poland, being under the special scrutiny of the Polish Financial Supervision Authority (KNF). The granting of credit, which binds the borrowers and the bank for many years, is subject to numerous regulations, with the bank itself as a financial institution being subject to numerous inspections.
This recalls the London market scandal, which came to light nearly 10 years ago as a result of investigations in the USA and Europe, involving a scheme by bankers to manipulate LIBOR for profit. In order to prevent such situations in the future, the legislative bodies of the European Union introduced an additional piece of legislation, i.e. Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (BMR).
Following the crisis of 2008, the nature of the interbank market actually changed, with interbank transactions becoming increasingly rare. Prior to the current legislation coming into force, being a compilation of the previous rules and guidelines of the BMR, WIBOR was set based on the regulations of ACI Polska, the Polish Bank Dealers Association. The WIBID and WIBOR Reference Rate Fixing Rules have recently been replaced by the Code of Conduct for WIBID and WIBOR Fixing Participants. However, the assumption was always the same – to reflect market conditions or the economic reality. One should not lose sight of the circumstances according to which WIBOR did not, and still does not, have to be created based solely on conducted interbank transactions. The BMR still allows for using other data relating to the economic reality, including e.g. NBP interest rates, within the limits of which WIBOR was formed. On 16 December 2020, the KNF Board authorised GPW Benchmark S.A. to operate as a WIBOR administrator. This process is subject to public scrutiny and assessments, as it concerns a critical benchmark for measuring the relevant market or the current economic reality.
It is understandable that the current economic situation in Poland has made borrowers look for ways to lower their instalments. However, should this lowering be achieved at the expense of both the financial sector and other market participants? Are the allegations made by borrowers in any way justified? These questions will be explored by the first judges handling lawsuits filed by PLN borrowers.
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