UPDATE 1-Top EU court backs Polish consumers over Swiss Franc mortgages

The European Union's (EU) top court ruled on Thursday in favour of Polish consumers who took out mortgages in Swiss Francs, allowing them to ask Polish courts to convert their loans into the local currency.

Analysts said the ruling favored a large chunk of Polish consumers with a specific type of foreign currency mortgage and would allow consumers to ask local courts to allow their mortgage's conversion into the Polish zloty. "The position of Polish consumers who took out Swiss franc denominated mortgages was strengthened by the ECJ ruling," Finance Minister Jerzy Kwiecinski told reporters.

Attracted by lower interest rates some 700,000 Poles who took out mortgages in foreign currencies, mainly in Swiss francs, are now paying far bigger instalments than they expected after the Swiss franc soared against the local zloty currency. The banks with the biggest FX mortgage portfolios include units of Santander, BCP, BNP Paribas and Commerzbank, as well as Poland's biggest lender PKO BP and Getin Noble Bank.

Bank shares rose sharply before the ruling on speculation it would favour banks but lost most of the gains after the decision was published. At 0846 GMT the banking index was up 0.3%. In its ruling the court said that if, after unfair terms were removed from the agreements, "the nature of the main subject matter of those contracts is likely to alter, in that they would no longer be indexed to a foreign currency while remaining subject to an interest rate based on that currency rate, EU law does not preclude that annulment of those contracts."

Michal Sobolewski, an analyst with BOS brokerage said it would be up to individual courts to decide in particular cases, adding: "The ruling means that the indexed credit may be converted into zloty, while keeping the Swiss interest rate. This is unfavourable for banks. "The ruling is a bit vague, leaves space for interpretation, which means that the risk for banks is a bit smaller than expected," he said.

Other analysts said consumers could only ask courts to annul their contracts, which would mean they have to repay the whole debt. However, the amount of the credit would be calculated on the basis of the Swiss franc rate from the day the credit was taken. That would be much lower than current rates and favour of consumers.

Foreign currency loans now total 124 billion zloty ($31 billion), almost one third of all Polish mortgages.

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