EU ruling on Polish FX loans poses no risk to credit rating: Fitch

BUDAPEST (Reuters) - An EU court ruling in favor of Polish borrowers with mortgages in Swiss francs is very unlikely to pose immediate downside risks to the country’s credit rating, Fitch Ratings’ Sovereigns and Supranationals Director said on Friday.

The Bloc’s top court, in a ruling given on Thursday, granted Polish consumers the right to ask courts to convert the loans into Poland’s zloty currency or cancel their contracts.

“This judgement as based on the details that we currently have is very unlikely immediately to pose downside risks,” Fitch’s Arvind Ramakrishnan told reporters on the sidelines of an investment conference in Budapest.

On Friday Fitch affirmed Poland’s credit rating at A- with a stable outlook.

In that review “we did highlight that this is a tail risk to keep an eye on,” he said. “The Polish banking sector as a whole is still generally well capitalized with a stable asset quality.”

Ramakrishnan did however say that fiscal handouts were becoming an issue in Poland as well as Hungary, where ruling nationalist parties face elections this month.

“In Poland, a series of fiscal measures was announced starting in February and yet the government has announced that it will have a balanced state budget by 2020,” Ramakrishnan said.

“It is not clear to us how a balanced state budget can be met even if there is a very heavy reliance on one-offs, which are the measures that have been announced.”

He also said such measures may turn problematic if economic growth slows sharply.

Ramakrishnan said while they had a positive impact on domestic consumption, they negatively affected fiscal metrics in Poland, and to a lesser degree, in Hungary.

“Taking the case of Poland, at the moment we believe that they still indent to adhere to the expenditure ceiling and debt reduction measures,” Ramakrishnan said.

“If the economy slows to such an extent that we perceive that those fiscal adherences are at risk, then that would be a net negative or a risk negative for the rating.”

Reporting by Gergely Szakacs; editing by John Stonestreet