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Trick no. 4 : Convertion of loan currency

In January 2015 there was a significant increase in the exchange rate of the PLN/CHF from about 3,30 PLN/CHF up to more than 4,00 PLN/CHF. It was a terrifying news for us. We were in a very dangerous situation: the loan balancing was very close to the value of the real estate (our flat) - so called "loan to value" factor (ltv) was very near to 1. Under normal circumstances the ltv gets smaller after every installment a borrower pays back to the lender. But when LTV goes up to 1 or more, then the borrower may find themselves in a very dangerous situation - they get trapped in the loan contract: even if they sell the real estate they are still in debt, because the value of the real estate is smaller than the loan balance converted to PLN. It is a bad situation, of which we had no idea that might occur (our initial LTV was about 0.7 so it was very safe and - please remember - the bank representative did assure us that such a situation is highly improbable).
We decided to eliminate the exchange rate risk from our loan. We decided to convert the loan to PLN. We were encouraged by one of the bank's letters, in which Deutsche Bank proposed some solutions for their clients in order to help them survive the period of high value of CHF vs PLN. Most of the solutions did not solve the real problem: the exposure to the exchange rate risk. They proposed prolonging the loan repayment and lowered their spread.
From our point of view, the only solution which could help was a convertion to PLN. When we wanted to make the conversion, the bank surprised us with the following procedures:
  • we have to make an application for the coversion, as if we were applying for a brand new loan (we had to submit a lot of documents as confirmation of our financial standing which were not available at hand) [funnily, the installment after conversion would be almost equal to the installment before] ;
  • we were not informed what happens if our financial standing is not good enough for conversion ;
  • after putting in the application to the bank, we waited three months for the bank to make their decision, and all this time we were exposed to the exchange rate risk (so if the exchange rate had gone up from 4.00 PLN/CHF to say 5.00 PLN/CHF then we would have end up with a huge loan balance after conversion);

  • The funny thing is that we - the borrowers who had been exposed to virtually unlimited exchange rate risk - had to prove to the bank that we could afford a loan in local currency (PLN). From our point of view, the bank made it difficult for us to convert the loan from a dangerous one (two risks: currency and variable interest rate based on libor) to a safer one (one risk: variable interest rate based in wibor). Also, we lost a lot of money due to the fact, that when we waited for the bank's decision about the conversion, there was a moment when the CHF xchg rate went down to 3.90 - but we could not react to this fact, we just had to wait til the bank deign to agree to the conversion.

    In our opinion, the bank had the right to check our financial standing before signing loan contract or maybe in case of conversion from PLN to CHF, but in case of conversion from CHF to PLN it was illegitimate and lacked adequacy. After conversion, we have been paying back the loan quickly and the LTV is currently being maintained on a safe level. If we had not converted to PLN, we would still be exposed to the unlimited exchange rate risk - and who knows if the rate will not go up to 6 PLN/ CHF in the future? What would we do then? This is something that we want to ask the bank during the law suit that we are going to file soon.


    Contents / Spis tresci

    Trick no. 1 : Mortgage loan selling procedure
    Trick no. 2 : The spreads
    Trick no. 3 : Contract repairment
    Trick no. 4 : Convertion of loan currency
    Trick no. 5 : Conversion of variable interest rate to fixed interest rate
    Problem no. 1: What should be done
    Problem no. 2: A very important question to finance specialists in poland
    Problem no. 3: Inconsistency of Deutsche Bank procedures of foreign currency loans handling
    Problem no. 4: Calculations before granting a CHF denominated loan
    [2021-07-14] One more inquiry about the balance clause in the annex
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    Not available in english yet

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