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ECB opens €10 bln tap for Poland

Poland's central bank on Friday bolstered its ammunition for fighting the effects of the global credit crunch on Polish banks with a deal allowing it to draw up to €10 billion from the European Central Bank.

The ECB said in a statement the agreement, concluded on November 6, will give the Polish central bank (NBP) access to ECB funds to use in repurchase transactions with Polish commercial banks struggling to borrow hard currencies due to the credit crunch.

Economists said the move was precautionary and could not be compared to the kind of emergency financial help countries such as Hungary and Ukraine have recently sought from the International Monetary Fund.

“This is not the type of loan that Hungary got from the IMF,” said Piotr Kalisz, senior economist at Citibank Handlowy in Warsaw. “It is worth noting that this lending facility is 'just in case’.”

Unlike Hungary, Poland, the EU's largest ex-communist member state, has strong economic fundamentals and relatively low foreign exchange exposure.

But the zloty has lost 10% against the euro since November 1, showing it remains vulnerable to external market shocks coming from other emerging markets. Conversely, any major market turbulence in Poland could send a new shockwave through the region.

“Confirmation (of the deal with the ECB)... certainly shores up Poland, which has been suffering almost guilt by association because of what has happened in Hungary,” said Stuart Bennett, currency strategist at Calyon.

Another economist, who declined to be named, said: “Today's agreement is about getting euros from the ECB to the Polish banking sector if they need it, so that it won't have to use up its own reserves and deplete them.”

The Polish central bank's reserves are above €50 billion.

Economists compared the deal to one struck between the NBP and the Swiss National Bank earlier this month.

That move was aimed at replenishing the supply of Swiss francs, which used to be popular among Poles taking out mortgages, to the Polish banking sector. As easy access to francs from abroad came to a halt due to the credit crunch, there was concern some banks could not refinance.

In the two weeks since the SNB swap agreement began, Polish banks tapped the NBP for some 500 million zlotys, or 200 million Swiss franc ($162.7 million). Poles have about 80 billion zlotys worth of mortgages in Swiss francs outstanding.

The centre-right government of Prime Minister Donald Tusk initially tried to put a brave face on the global financial storm, insisting Poland will be shielded from it thanks to strong growth and low exposure of local banks to toxic assets.

But as the global turmoil began to hit the real economy hard the government began to take some action.

Parliament is working on a bill that would allow the government to guarantee some interbank loans and a bill allowing the government to recapitalize banks in a crisis is also on the agenda.

The head of the Polish Banks' Association told Reuters in an interview on Thursday that banks were beginning to loosen their lending policy after some drastically tightened it last month.

But Krzysztof Pietraszkiewicz cautioned that the easing of lending restrictions was unlikely to be significant and it would take many months before the shock of global turmoil worked its way through the system. (Reuters)