As Poland debates benchmark interest rate reforms, experts explain how transitioning from WIBOR to POLSTR affects loan costs, market stability, and consumer protections. <\/p>\n
In the discussion on benchmark reform, different problems are increasingly mixed together. The assessment of the reform’s progress is combined with the question of loan costs, the technical construction of the indicator is presented as an obstacle for the consumer, and the correction of the reform schedule is recognized as proof of the failure of the entire process, writes Dr. Tomasz Pawlonka, director of the Research and Analysis Team of the Polish Bank Association and director of the Analytical and Research Program at the Warsaw Institute of Banking.<\/p>\n
This is an impressive simplification, but economically erroneous. The reform does not boil down to indicating a single rate that will always be the lowest. It is about creating reliable foundations for interest rates and a safe departure from WIBOR.<\/p>\n
The choice of POLSTR as the target successor to WIBOR was preceded by a re-review of indices, additional analyses, and consultations. Among other things, the nature of the transactional pool, volatility, and the possibility of building a market for instruments based on the new rate were evaluated.<\/p>\n
Were all decisions made quickly enough? This can be debated. However, it is difficult to consider that the verification of the previous choice proves an inability to carry out the reform. In a process involving loans, bonds, derivatives, and millions of contracts, changing a decision under the influence of new data simply testifies to the operation of a control mechanism.<\/p>\n
Previous work has also not disappeared. Product standards, IT solutions, conventions for using RFR-type rates, and knowledge of the limitations of individual structures remain. POLSTR is developed and published, recommendations for its use have been created, the first emissions and implementations have been carried out, and the market is preparing infrastructure for derivatives. In short, the reform has provided an indicator ready for use immediately.<\/p>\n
Since POLSTR is being implemented, why consider the NBP reference rate? Because they are two different interest rate bases. POLSTR is based on money market transactions, while the NBP reference rate is a monetary policy rate set by the Monetary Policy Council. Allowing more than one solution makes it possible to build products that distribute interest rate risk differently.<\/p>\n
The reform assumes limiting the use of WIBOR in new contracts and leaving it to service the existing portfolio for the time necessary for an orderly phase-out.<\/p>\n
A long transitional period is sometimes presented as a solution convenient primarily for banks. Such an interpretation omits the interests of clients bound by multi-year contracts. A sudden change in the interest rate basis of millions of contracts would require indicating a new rate, the convention for its application, a possible corrective spread, and the moment of transition to the new rules. Each of these elements would affect the value of the liability.<\/p>\n
Does the borrower’s interest really lie in changing one of the fundamental terms of a multi-year contract as quickly as possible? In my opinion, it is the opposite. The client should have certainty that the reform will ensure the stability and predictability of loan costs.<\/p>\n
The orderly phase-out of WIBOR protects the operational continuity of institutions and stability on the borrower’s side. Reducing this exclusively to the convenience of the banking sector is a far-reaching simplification.<\/p>\n
Since POLSTR is an overnight indicator, in products with a longer interest period, it can be applied in the form of a compounded rate. This sounds more complicated than reading a single term rate, but the technical method of calculating the index is not the same as the method of informing the client about the amount of the interest rate and installment.<\/p>\n
The borrower does not have to independently compile daily POLSTR values, just as they do not recreate the WIBOR fixing process today. However, they should know what indicator is used, where its value is published, how often the interest rate changes, and when they will learn the amount to be paid.<\/p>\n
In the recommended construction for retail clients, the POLSTR 1M Compounded Rate value is available before the start of the next interest period. Therefore, the claim that a compounded rate automatically prevents the prior determination of the installment is untrue. This is decided by the product’s design.<\/p>\n
The application of the NBP reference rate should be evaluated similarly. Directly linking the interest rate to it may mean faster transmission of MPC decisions to loans. However, this mechanism cannot be described solely under conditions of increases. When rates rise, interest rates may rise faster. When they fall, the same mechanism will lower the cost of the loan faster. Moreover, the moment of installment change depends on the frequency of updates specified in the contract.<\/p>\n
MPC decisions already affect loan installments today\u2014through WIBOR, bank financing costs, deposit interest rates, and credit availability. Basing a loan on the NBP rate would only change the way this impact reaches clients.<\/p>\n
If We Compare Indicators, Let Us Do It Reliably<\/p>\n
Most misunderstandings arise when answering the question of which indicator means a more expensive loan.<\/p>\n
The interest rate consists of at least the base rate and the bank’s margin. If we change both elements in one comparison, we are unable to indicate which one is responsible for the difference in the installment. Despite this, loans are often presented as products differing in the indicator while also differing in margin, and then the entire cost increase is attributed to the base rate.<\/p>\n
This is a methodological error. If we want to examine the impact of one factor, the remaining conditions must remain unchanged. The ceteris paribus rule applies.<\/p>\n
Therefore, in the Polish Bank Association’s simulation, a mortgage loan of PLN 500,000 was assumed, with a repayment period of 25 years, equal installments, and an identical margin of 2 percentage points in all variants. Only the interest rate basis was changed.<\/p>\n
With the data used in the simulation, the highest cost was generated by WIBOR 3M, followed by WIBOR 6M and WIBOR 12M. The latter indicator is slightly below the reference rate. In other cases, the NBP reference rate was below the analyzed varieties of WIBOR, and the lowest cost was provided by POLSTR 1M.<\/p>\n
Does this mean that this order will always apply? No. The relations between rates change along with the course of the interest rate cycle, market expectations, and the construction of indicators. However, the calculations show something important: there is no basis to claim that the mere application of POLSTR or the NBP reference rate must lead to a more expensive loan.<\/p>\n
Its attractiveness is determined jointly by the interest rate, margin, type of base rate, update frequency, total cost, early repayment rules, and solutions in the event of ceasing the publication of the indicator. Two loans based on the same rate can have completely different costs. Conversely, products using different interest rate bases can lead to similar burdens.<\/p>\n
Allowing the use of the NBP reference rate may therefore be an attempt to create a broader catalog of transparent interest rate bases and enable the construction of products differing in the way interest rate risk is transferred.<\/p>\n
Each such solution requires legal analysis, consultations, and an assessment of the effects for clients. However, the discussion cannot begin with the assumption that there is only one correct credit model and that the appearance of an alternative proves the failure of the entire reform.<\/p>\n
In summary, the goal of the reference rate reform should be to ensure reliable interest rate foundations, protect the stability of existing contracts, and create conditions for proper risk management. Products should be compared solely on their full economic terms.<\/p>\n
Dr. Tomasz Pawlonka, Director of the Research and Analysis Team of the Polish Bank Association, Director of the Analytical and Research Program of the Warsaw Institute of Banking<\/p>\n","protected":false},"excerpt":{"rendered":"
As Poland debates benchmark interest rate reforms, experts explain how transitioning from WIBOR to POLSTR affects loan costs, market stability, and consumer protections. The Shift in Benchmark Reform In the discussion on benchmark reform, different problems are increasingly mixed together. The assessment of the reform’s progress is combined with the question of loan costs, the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"wpai_generated_summary":"","footnotes":""},"categories":[40],"tags":[],"class_list":["post-15894","post","type-post","status-publish","format-standard","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/posts\/15894","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/comments?post=15894"}],"version-history":[{"count":0,"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/posts\/15894\/revisions"}],"wp:attachment":[{"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/media?parent=15894"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/categories?post=15894"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bizonews.com\/pl\/wp-json\/wp\/v2\/tags?post=15894"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}