May 28, 2015 / 10:28 AM / 4 years ago

Polish bank PKO holds onto dividend to cover Swiss franc lending

WARSAW, May 28 (Reuters) - PKO BP, Poland’s biggest bank, confirmed on Thursday it will not pay out a dividend on last year’s profit following the local regulator’s recommendation that banks withhold dividends until an additional capital requirement is met related to Swiss franc-denominated lending.

The state-controlled lender said in a statement it would propose at the annual shareholders meeting on June 25 that it retain 1.25 billion zlotys ($331 million) of profits in reserves which could eventually be paid out in dividends some time in the future.

In addition the company said it plans to reserve as spare capital another 1.9 billion zlotys of net profits.

Last year PKO paid out a dividend of 0.75 zlotys per share, a total of 937.5 million zlotys out of net profits of 2.96 billion zlotys.

But the regulator, KNF, has asked banks with significant portfolios of Swiss franc-denominated loans to withhold dividends, after a surge in the value of the Swiss currency.

The regulator plans to impose additional capital requirements to cover such foreign currency lending to unhedged borrowers under the supervisory and evaluation process (SREP). However, this doesn’t require any loan book revaluations, KNF said.

More than half a million Poles held a combined 144 billion zlotys ($38 billion) in Swiss franc debt as of the end of March, accounting for about 40 percent of all Polish mortgage lending, most of it taken out before the 2008 global financial crisis to take advantage of low Swiss interest rates.

These loans have become much more expensive to service since the Swiss National Bank in January removed the cap on the franc’s exchange rate against the euro, sending the franc’s value soaring.

Poland’s newly elected president Andrzej Duda has said he would propose a conversion of the franc-denominated debt into zlotys at historical exchange rate levels, a move that could cost lenders 25 billion to 50 billion zlotys, according to analysts.

Although the president has no direct say on economic policy, Duda’s Law and Justice party could win the general election in the autumn, according to opinion polls. ($1 = 3.7765 zlotys) (Reporting by Marcin Goclowski; Editing by Agnieszka Barteczko and Greg Mahlich)

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