When is the loan installment not sustainable?

– The first signs of deterioration in the quality of loans, especially housing loans, will occur in October-November of this year, Valdemar Rogovsky said during the conference “Banking Perspectives” organized on the occasion of the 30th anniversary of the monthly financial bank. .

Why is fall supposed to be a time of truth for borrowers? Because the Monetary Policy Board has already raised interest rates nine times since last October, including the key rate from 0.1 percent. up to 6 percent in June. Each increase in NBP rates leads to an increase in the WIBOR rate, which is the basis of the interest rate on the lion’s share of loans in Poland. When NBP rates go up, loan installments go up.

So far – the banks say – the loans, especially housing loans, have been repaid to the fullest. This is confirmed by data from BIK, an institution that analyzes the repayment of loans granted by banks to families in Poland. So far, the premiums have not yet increased so that a significant part of the borrowers cannot repay.

– We do not see any deterioration in quality, on the contrary (…) pandemic lending behaves much better than pre-pandemic lending. The loss ratio of home loans is lower than in 2019 and 2021, Waldemar Rogowski said, adding that the average bad home loan ratio in May this year was 2.7%.

But NBP rates are rising every month. So how much do the premiums increase? Valdemar Rogovsky says that the first mortgage installment is 311 thousand. PLN – this average that the Poles contracted in the period of ultra-low interest rates, that is, between June 2020 and September 2021 – was on average PLN 1,389. In May of this year, the borrower had to pay 2291 PLN. And in the fall there will be more.

Loan agreements in which the interest rate is based on the WIBOR rate usually operate in such a way that the premium increases with a slippage of three months (for WIBOR 3M) or six months (for WIBOR 6M) of rate change. And although rates are rising month by month over three quarters already, when the payments are made, borrowers feel the rate increases from three months or six months. But these effects (as well as other increases) will grow like a snowball. The avalanche will begin this fall.

When NBP prices started rising last fall, bankers said — as long as WIBOR doesn’t hit 5 percent. There is nothing to be afraid of. But then it will only get worse with each increase. The three-month WIBOR rate broke 5 percent. Already at the beginning of April, along with the impressive increase in the headline NBP rate by one percentage point. But the effects of this increase will translate into the amount of the loan installment to be paid in July or even August. WIBOR 6M broke the 5 percent level. In the middle of March and April. The first installment of the loan taking into account the high interest rate will be paid in October or November. Hence the predictions of BIK.

Let’s recall that in the period of extremely low prices, more than half a million Poles recruited more than 300,000. Home loans worth 102.8 billion PLN – according to BBK data.

Which of them will fall off the wall first? BIK identifies several groups at risk. These are the borrowers who have more than 200,000 to repay them. PLN for capital, those who have used their entire debt limit (in an account or credit card), have 10 or more obligations and also have a relatively low credit rating, and the bank still lends them money.

Of the 738 billion PLN in loans granted to families by banks until the end of April, 71% were housing loans, i.e. PLN 521.1 billion. Of this, loans in PLN at a variable rate (ie WIBOR) amount to 415.6 billion PLN.

It is possible that corporate loans – almost 370 billion PLN at the end of April – will begin to deteriorate, and this will happen soon. why? Economists expect Poland to experience strong economic weakness. The Polish Economic Institute is alarming – the financial condition of enterprises is deteriorating, and the MIK business climate index (computed by PIE with Gospodarstwa Krajowego) shows a very strong deterioration in liquidity – especially for small businesses – over the past two months. Despite this, companies are currently paying off their loans well.

There has been no deterioration in the loan portfolio in the SME market so far,” said Marek Majesk, Vice President of Allure Bank during the conference.

Meanwhile, however, in another PIE “Tygodnik Gospodarczy” reported that already in May MIK read 36 percent. of companies that recognized that rising costs of loans and other external financing are a significant or very important barrier to business, and in June this percentage rose to 41%. At the same time, let us remind you that in recent months companies have taken out loans for working capital on a large scale in order to build up stocks of semi-finished products and components, fearing supply disruptions.

Meanwhile, at the same time in May, the Polish manufacturing PMI fell to 48.5 from 52.4 in May, which is an indicator of a strong decline in economic activity, or more precisely – a signal of recession. The decline in the PMI was caused, among other things, by a deteriorating assessment of production and new orders, including those from Western Europe. This could mean that your sales revenue will start to shrink, as will your cash flow, making it difficult to service your inventory obligations.

Adam Pearce, Vice President of mBank, said that the company that paid 10 million zlotys in interest will now pay 25 million zlotys in interest.

If this is not enough, the rising cost of debt servicing is additionally accompanied by constant pressure from rising costs of fuel, raw materials, transportation and energy. So does the pressure of ever-increasing labor costs, because employees want their wages to offset the losses caused by inflation. By the fall, corporate problems may grow on a large scale, and the liquidity that has been pumped into them during the pandemic will not leave even a trace.

Jacek Ramotovsky