Harmful choices

Polish firms have lost billions through currency options contracts and blame is now being traded.

Polish companies have incurred losses of about zł.7.5 billion as a consequence of currency options contracts signed over recent months, according to estimates by the Ministry of Finance and the Polish Financial Supervision Authority (KNF).

Currency option contracts were signed by a number of Polish firms which target foreign markets. The intention was to hedge revenues in foreign currencies as the złoty strengthened in 2008. These contracts became a problem, however, as the value of the złoty fell in H2 2008.

The foreign-exchange option crisis has delivered a blow to a number of bourse-listed firms, including Wielton, Sfinks, and Zelmer. Some firms had to change their financial projections for 2008, and at least one has already gone bankrupt.

In the same month, a debate erupted when some companies publicly complained that banks had not informed them about the risks involved, or of the possibility of incurring losses. Public institutions also intervened, with the KNF launching an investigation into the matter. Deputy Prime Minister and Economy Minister Waldemar Pawlak, said in mid-December that banks, which are generally backed by international institutions, should help find a resolution to the problem.

Pawlak offered the government's help to affected firms in negotiating with banks, possibly allowing postponement of payment or having it split into installments.

Bogusław Półtorak, an analyst at Bankier.pl, said it was the companies' mistake to trust such financial instruments to such a great extent. On the other hand, it is understandable that they wanted to protect their revenues from the strengthening złoty.
"Their intentions were clear, and the contracts were not speculative," Półtorak said, stressing that banks were also ethically responsible for the situation.

But if a company wants to sue a bank, it needs to prove that it had not been properly informed about the related risks. "This will be very difficult," Półtorak concluded.

Konrad Kiedrzyński