Zbigniew Jagiełło: Borrowers benefit from high inflation

EKG 2022. XIV European Economic Congress. Zbigniew Jagielo

Zbigniew Jagiełło, former chairman of the board of directors of PKO Bank Polski, says that borrowers are gaining thanks to high inflation. As he argues, it’s simple math and the difference between interest rates on loans and high inflation, which is caused by four factors – government policy, MPC policy, as well as the pandemic and war. in Ukraine.

Mr. President, for how many years have you been president of PKO BP?

About 12 years old.

You broke those poor borrowers terribly… P

Before my arrival at the bank, there were loans, during my stay at the bank, there were loans and there are also loans after my departure…

The subject of high interest rates and high inflation is very moving. Hence the proposed liquidation of WIBOR. How do you like this idea?

Money evokes emotions, and big bucks evoke big emotions. I have been dealing with mortgages for a long time. Unfortunately, the Polish market has not adopted the good practices of more mature countries. Would you like a 20-year loan with an interest rate of 1.5%?

Everyone would.

So you have to go to the Western countries of the European Union. There are such loans out there. Why doesn’t Poland have such loans? The first reason is that we are not in the euro zone. I have raised this subject several times. Looking at the Prime Minister’s proposal to replace WIBOR with a new index, I feel like that’s a solution for a while. In the next few years, Poland is expected to introduce a fixed-rate, long-term loan. Not when the feet are high, but when the feet are low. This, of course, does not solve all the problems, but it can lead Poles to cheap and safe loans. Because it is a social problem. Anyway, every government has tried to address this issue in one way or another, hence the programs: Rodzina na Swoim, Mieszkanie dla Młodych or Mieszkanie Plus.

Credits go up. There is a decision of the MPC. How much will the monthly loan payments increase?

The bad guys said these were programs that favored developers more than borrowers. These loans usually carried higher interest rates than those generally available.

Part of the problem has been solved and only this part has been solved. The whole question has not been examined. I think these loans should be concentrated in one place. For example, directly to Bank Gospodarstwa Krajowego. After the Prime Minister’s statement on the liquidation of WIBOR and support for borrowers on the stock exchange, bank prices fell and the price of BGK did not move. Why? Because it’s not in the stock market. It is a bank controlled 100% by the Treasury and it is a bank with a mission. If our mission is to help people who take out a loan for their first apartment, we should place this product in this institution. Commercial banks with access to the client would offer this product on terms specified by BGK or the fund separately from the rest of the business. Today solutions work for a while and then problems arise.

Why haven’t banks offered fixed interest rates on loans?

They have been offering for several years. But the commercial banks failed to convince the financial stability committee that in times of low interest rates, these are the loans preferred by this committee. Assuming that these loans are safer for customers, they should not be subject to the tax on bank accounts.

What is WIBOR, who is so scared right now? Is it really a fictional indicator?

It is wrong to use an expression such as a dummy indicator. WIBOR has no material value, but that doesn’t mean it’s fake. It is an indicator of what we call the cost of money in banking. If, as a bank, I wanted to lend you money, I would first have to borrow it from someone and estimate the cost of the loan. What is the gain? The difference between what I would have borrowed from you and what I would have borrowed from someone else. The bank has no money of its own. If they are, they constitute regulatory capital which exists in the event of non-repayment of loans granted by customers. If WIBOR were replaced by another indicator, average consumers would describe it as fictional anyway.

I have read the opinions of banking analysts who claim that what the Prime Minister has proposed is not really clear. And it may be that over time this new indicator is less favorable than the current one.

The future is unknown. Yes it’s possible. It may be otherwise. I don’t know that. What is important in banking is the cost of money. How much do we borrow money from individual customers, companies, other banks or international institutions. Money in a bank is a commodity. With regard to mortgage loans, a few years ago there was a good idea, linked to the fixed lending rate, for banks to finance these loans by issuing covered bonds, that is to say obligations secured on these loans. Then the question of borrowings thus constructed would be clear. For example, I borrow 100 million over 5 years at a price of 3% and I sell 100 million at 6% on the mortgage market. 3% is a profit that must be paid, including regulatory costs. Let me remind you that mortgages in Poland are subject to tax on bank accounts. Last year, the State Treasury collected PLN 4 billion in this way.


ECG 2022: Zbigniew Jagiełło

Why do we have such high inflation?

There are four sources of this inflation. The first was created by the government’s expansionary fiscal policy. The second factor is the accommodative monetary policy of the MPC and the NBP. And there are two sources beyond our control: the pandemic and war. These four sources coincided in time. I believe that a mistake was made because the tax measures initiated by the government continued when the pandemic was to come. In the end, the war came and we have double digit inflation.

Should she be stopped?

These are the first two sources and what the government and MPC can do. Overcoming this difficult situation requires sacrifice. The question is whether politicians can afford sacrifices in the run-up to parliamentary and local elections.

The prime minister said the economy is expected to cool slowly. What could that look like?

It’s good that the word “slowly” was used. I think that reviving the economy and tightening fiscal policy must be done gradually. The economy does not like shocks because they are deadly. Gradually increasing both parameters is good neither for the economy nor for society.

Who makes money with inflation?

Borrowers earn the most.

A bold thesis.

It’s pure math. If interest rates are 5.5 percent. and 11% inflation, I’m ahead of credit because real rates are negative. Savings holders lose and borrowers gain.

So why aren’t they happy, on the contrary?

Maybe they haven’t realized it yet.

Interviewed by Hubert Biskupski


Are you still able to repay the loan?

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