November 21, 2018 / 4:14 PM / 6 months ago

UPDATE 1-Legal reform shift, bank relief give Polish stocks best day since Jan

    * Warsaw's blue chip stock index rises almost 2 pct
    * Poland backtracks on court reform to ease tension with EU
    * Worries ease that regulator's scandal will hit bank sector
    * CEE currencies stable or slightly firmer

 (Adds detail, quotes, background)
    By Sandor Peto and Marc Jones
    BUDAPEST/LONDON, Nov 21 (Reuters) - Poland's currency and
stock market rallied on Wednesday after the government changed
tack on legal reforms that have fuelled a crisis in relations
with the European Commission.
    Polish markets have suffered badly this year as the ruling
Law and Justice (PiS) party's plan to force top judges to retire
early raised concerns in the European Union about standards of
democracy in Poland.
    The European Court of Justice in October ordered PiS to
suspend its plans and the government made a rushed amendment on
Wednesday that will now allow the 20 or so judges that had been
affected by the changes to remain in their
    The government's change of tack helped send Warsaw's main
stock index, which slumped to a 19-month low last
month, up 2.7 percent, its best day since Jan. 4. 
    The zloty, which has lost 12 percent against a rampant
dollar this year and has fallen 4 percent against the euro, rose
0.5 and 0.3 percent to 3.77 per dollar and just under
4.30 per euro.
    "I think this decision may modestly ease the prevailing
tensions with the government in Poland and the European
Commission," said Rabobank strategist Piotr Matys, although he
cautioned there could still be more twists to come.
    Polish markets' woes have been further compounded this month
by a $10.5 million bribery scandal that forced the head of the
country's banking regulator to quit last week.
    There was relief on that front too on Wednesday after the
central bank reiterated that savings in the two banks at the
centre of the scandal would be guaranteed and that it would
provide liquidity support to the banks themselves.
    Shares of the two banks, Getin Noble Bank and Idea
Bank, leapt 33 and 25 percent respectively, after
plunging by around 90 percent this year on worries about their
    Both banks fell sharply last week too after Polish
billionaire Leszek Czarnecki, who controls both banks, made the
corruption allegations against financial regulation chief Marek
Chrzanowski. He has denied any wrongdoing.
    The scandal had knocked down the zloty to almost 4.34 versus
the euro, near a four-month low, despite robust domestic
economic growth and wage increases that have boosted
expectations of interest rate rises next year.
    "We welcome, in particular, that Poland's central bank (NBP)
is providing liquidity for the two lenders," Raiffeisen analyst
Sebastian Petric said in a note to clients.
    "We think that any damage from this event (the scandal) is
contained and that investors should use this as an opportunity
to enter into short EUR/long PLN positions," said Petric, adding
that the zloty could firm to 4.2 by the end of the year. 
    Credit Agricole's emerging markets strategist Guillaume
Tresca also said the scandal was unlikely to do lasting damage
to the Polish banking sector or cause the central bank to delay
future interest rate increases. 
    "The only question is the impact on (NBP governor) Adam
Glapinski and there is no sign so far that he will resign," he
    Bucking the market's rally on Wednesday was Alior Bank
, which fell 3.3 percent. Poland's anti-corruption
agency said it searched Alior Bank's offices on Wednesday over
potential irregularities regarding a multi-million zloty loan.
    Alior said it was cooperating fully with the authorities.
            CEE       SNAPSHOT   AT                         
            MARKETS             1106 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0080   26.0450    +0.14%    -1.79%
 crown      >                                       
 Hungary    <EURHUF=  321.3800  321.5000    +0.04%    -3.26%
 forint     >                                       
 Polish     <EURPLN=    4.3052    4.3056    +0.01%    -2.99%
 zloty      >                                       
 Romanian   <EURRON=    4.6640    4.6655    +0.03%    +0.34%
 leu        >                                       
 Croatian   <EURHRK=    7.4290    7.4265    -0.03%    +0.02%
 kuna       >                                       
 Serbian    <EURRSD=  118.2500  118.3600    +0.09%    +0.21%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1058.75  1060.020    -0.12%    -1.80%
 Budapest             39131.30  39058.30    +0.19%    -0.62%
 Warsaw                2201.46   2160.57    +1.89%   -10.55%
 Bucharest             8479.27   8499.23    -0.23%    +9.36%
 Ljubljana  <.SBITOP    816.87    814.82    +0.25%    +1.30%
 Zagreb                1731.78   1734.14    -0.14%    -6.03%
 Belgrade   <.BELEX1    741.77    741.69    +0.01%    -2.37%
 Sofia                  584.30    586.98    -0.46%   -13.75%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6470    0.1720   +229bps    +17bps
   5-year   <CZ5YT=R    1.8390    0.0050   +206bps     -1bps
   10-year  <CZ10YT=    2.0880    0.0040   +172bps     -2bps
   2-year   <PL2YT=R    1.5840    0.0140   +223bps     +1bps
   5-year   <PL5YT=R    2.4720    0.0410   +269bps     +2bps
   10-year  <PL10YT=    3.2140    0.0150   +284bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.22      2.33      2.42      2.01
 Hungary                  0.30      0.57      0.84      0.13
 Poland                   1.76      1.80      1.86      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Alicja Ptak in Warsaw
Editing by Susan Fenton)
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