WIRON will soon replace WIBOR. Loans with a variable interest rate granted to individual customers should be based on the WIRON one-month (1M) Compound Rate – it results from the draft recommendation of the National Working Group for Benchmark Reform (NGR).
On Tuesday, the Polish Financial Supervision Authority published a draft recommendation on the rules and methods of using the index interest rate WIRON (or indices from the WIRON Compound Indices Family) when concluding new contracts for PLN products based on a reference index offered by financial market entities. The proposal was prepared by the National Benchmark Reform Working Group.
As explained, the consultations will last until February 7, 2023. Until then, you can submit comments on the draft recommendation.
WIRON will replace WIBOR
As stated in the draft, NGR recommends for individual customers that for loans with a variable interest rate, the interest rate based on the WIRON 1M Compound Rate should apply. This would mean updating the interest rate on the loan, and thus the amount of installments, every month.
For loans with a periodically fixed interest rate, after the end of the period of validity of this interest rate, a variable interest rate based on the WIRON 1M Compound Rate is also recommended.
“The principles described in Recommendation 1 and 2 have been recognized by the Stream of Banking Products of the National Benchmark Reform Working Group as the best compromise between the frequency of interest rate changes, which should occur in periods that are closest to the periods of interest rate changes occurring on the market (i.e. periods daily – overnight), and taking into account the legitimate interests of the consumer.
At the same time, it was emphasized that the WIRON 1M Compound Rate is an indicator that gives the opportunity to inform about the interest rate before the start of the interest period, thanks to which the consumer is provided with information about the amount of interest due in advance and time to collect the due funds.
This will be a big change for borrowers, because currently mortgage loans are mostly based on WIBOR 3M and WIBOR 6M, which means that their interest rates are updated every three or six months, respectively.
Poland at the forefront of the EU
The Polish market is dominated by loans with variable interest rates. PKO BP economists in one of their analyzes cited data from the European Central Bank, which showed that in August 2021 the share of new household loans based on a variable interest rate in Poland was the fifth highest in the EU and exceeded 90%. For comparison on Hungary and in France it was about 30 percent.
Representatives of PKO BP also pointed out that the period of record low interest rates in Poland increased the popularity of loans based on a variable rate even more, and their share approached 95%. A similar level was recorded during the credit boom of 2006-2008.
Deadline for completing the reform
The WIRON index is to replace the WIBOR index soon. The withdrawal of products and instruments using WIBOR is to take place in 2024. The road map published at the end of September last year on the website of the Polish Financial Supervision Authority shows that the entire reform is to be completed in 2025.
In recent weeks, Bank BNP Paribas and ING Bank Śląski announced that they were suspending the granting of mortgage loans with a variable interest rate based on WIBOR.
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