BA-05
Analysis of the loan agreement text – loan currency
Banking Law states that the agreement should specify in particular the “amount and currency of the loan”. It says nothing about several currencies, and even less does it provide for the possibility that the capital paid out and the capital repaid will have different values. The division into capital and interest required by law has a specific purpose – it makes it possible to determine unambiguously how much the loan is and how much the fee for it is. Without specifying a single loan currency, the value of the capital cannot be determined unambiguously; therefore the currency and the amount (treated as an indivisible whole) are the most important provision of the loan agreement, established on the first page, in the first paragraph of the agreement.
Here is an example:
“The Bank grants the Borrower a Loan in the amount of: PLN 237,576.00 (in words: two*three*seven*five*seven*six*point*zero*zero* Polish zlotys) (…)”
Everything is clear and simple – the loan currency is undoubtedly PLN, and thanks to this we can unambiguously determine the amount of the borrowed capital, but there is also a continuation:
“(…) indexed to the CHF exchange rate hereinafter referred to as the “Loan”, under the terms specified in the agreement, and the Borrower undertakes to repay the amount of the loan used together with interest” (…)
How does dual-currency construction relate to determining the amount of loan capital to be repaid?
Was it lawful to lend in PLN and demand repayment in CHF?
Was it possible to separate the amount of the loan made available from the value of the debt created?
The wording of Article 69 of the Banking Law: “repayment of the amount of the loan used together with interest” essentially contains everything we need, but the remaining provisions: “the loan agreement should be concluded in writing and specify in particular: (…) the amount and currency of the loan, (…) the interest rate (…) the amount of commission” only deepen our certainty that the lender cannot demand anything beyond the borrowed sum of money and clearly defined interest and commission.
However, with a dual-currency loan, it is impossible to state in zlotys the total amount of the loan that the borrower will be obliged to repay. The interest rate also ceases to fulfill its informational function, because it is impossible to calculate how many zlotys the interest cost will amount to, since the exchange rate necessary for these calculations is unknown.
Repayment of loan instalments in zlotys was only a formal fiction reducing zlotys to the role of pieces of paper paid in at a bank counter, but in real terms, that is, according to the laws of mathematics, the borrower was repaying a value in a foreign currency, although at the time of loan disbursement he actually received only zlotys. Bank loan repayment simulations (and algorithms for assessing creditworthiness) which assumed that the exchange rate would remain unchanged for 30 years were wrong by design, meaning that they lulled borrowers into a false sense of security. Why did no one react?!
There is not the slightest room for a dual-currency loan in Article 69 of the Banking Law, so why were agreements based on dual-currency construction introduced into circulation and left unquestioned for so many years — quite the opposite, in 2011 the Banking Law was amended to finally sanction them?
I leave the comprehensive study to the specialists who will edit this page.
Above, I have included only my observations.