What happens to credit in the event of a war? Do you have to pay it back then? What happens to credit in the event of a war? Does the loan have to be repaid during the war or will it be canceled? The armed conflict just across the Polish border makes such questions appear more and more often in the minds of people who pay off various liabilities. It is therefore worth knowing how, in the event of the outbreak of war in Poland, banks can approach loans and what effects such a crisis situation may have on borrowers. What happens to credit in the event of a war? Do you have to pay it back then? What you will learn in this article:
Is loan repayment suspended during an armed conflict?
Inflation and interest rates - what is the relationship between them?
Does my credit insurance cover the possibility of a war breaking out?
What might be the banks' reactions to the outbreak of war? What will they offer borrowers?
Poland is not threatened by war so far, so let us treat our considerations on the repayment of the loan during the war purely hypothetically. However, the geopolitical situation can change at any time and therefore it is worth being prepared for various scenarios. The more so as the problem may concern a large number of borrowers - according to estimates, in Poland up to 2.5 million people repay mortgage loans, and over 5.2 million people repay cash loans. Therefore, below we will explain what happens with a loan in the event of a war and whether banks have any procedures in place at all in such a situation.
Let's start with the fact that in times of war, repayment of loans becomes the least important thing for most people. When faced with imminent danger, the first priority is a safe shelter and basic needs for yourself and your family.
After the outbreak of the war, people first massively withdraw funds from banks in order to have enough money to buy food or organize an escape to another country. The repayment of the loan during the war is of secondary importance, the more so as it is usually very difficult to implement. Military operations suspend the activities of schools, offices and many businesses, resulting in the loss of a source of income for many people.
Therefore, it is not difficult to guess that the outbreak of war means a very serious problem for banks. The outflow of deposits and the simultaneous cessation of loan repayments threaten their financial liquidity. Banks have to be prepared for such situations, and therefore, in the event of war, they have appropriate operating procedures, also in terms of dealing with borrowers. Their approach, however, usually depends on top-down decisions - from the government, central bank or supervisor.
Low interest rates matter for every borrower. They mean that loans are cheap, i.e. we pay less interest on the borrowed capital. Thus, an increase in rates will cause the installments of already taken loans to increase. If? It depends on when and on what terms we took out the loan, which we are currently repaying.
The National Bank of Ukraine ordered banks not to treat loan defaults during the war and 30 days after its end as arrears, provided that the failure to pay their liabilities is related to Russian aggression. In other words, borrowers directly affected by the war should not be recovered and prosecuted for unpaid installments.
So what about credits during the war really happens? Contrary to the hopes of some, they are neither canceled nor canceled. The agreements are in force all the time, but for obvious reasons, banks have to adapt to the situation and accept the periodic lack of credit installments.
So, unpaid credit during the war is not lost and it should be taken into account that after the end of hostilities, the bank will have the right to claim its receivable.
In practice, however, recovering loans by banks after the war may be quite difficult. As a result of hostilities, many borrowers may lose their lives or never return home from emigration. It is worth mentioning here the example of the People's Bank of Poznań, which recovered only 22% of loans granted before 1939 after World War II.
The greatest concern in the context of an armed conflict is a mortgage loan - the war may not only result in the inability to pay installments, but also the destruction of real estate. It is not difficult to imagine such a situation when a house or flat bought on credit during the war will fall into ruins.
Theoretically, the insurance, which must be obligatorily taken out when taking out a mortgage, protects against the effects of the destruction of the real estate on which the mortgage is established. Unfortunately, such policies protect the borrower mainly in the event of damage caused by fire or unfavorable weather conditions, e.g. storms or floods. Then you can count on the payment of compensation covering the costs of rebuilding or renovating the property.
Insurers are not liable for damages resulting from hostilities or terrorist acts, which can be easily checked in the General Terms and Conditions of Insurance.
So what will happen with a mortgage loan if the borrower loses the ability to pay installments as a result of the war or his property is completely destroyed? And in this case, the loan will not be canceled. The bank will be able to demand its repayment, even when the real estate purchased on credit is razed to the ground. Moreover, if the borrower dies as a result of hostilities, the bank will have the right to pursue its claims against his heirs.
It is difficult to answer the question whether you need to pay off the loan during the war, because it depends on the approach of a particular bank or top-down decisions in this matter. Certainly, one should not count on the fact that the war will cancel the loan. Credit agreements will remain in force, but the issue of the obligation to repay the obligation may be treated differently.
The most feasible scenario is that wartime loan repayments will be suspended until the end of martial law. This may be determined individually by a given bank, or as a result of a top-down recommendation of a supervisory authority, as was the case in Ukraine.
Certainly, people who are able to settle the liability according to the schedule should continue to do so. On the other hand, the others, if possible, should agree with the bank to suspend loan installments or other form of debt repayment facilitation.
We already know what happens to credit during the war. However, it is worth considering what the impact of the war on credits will be later on. Can the liability costs or the installment increase after its completion?
When it comes to costs, post-war credit may unfortunately become more expensive. In countries affected by hostilities, there is usually a large increase in inflation and a weakening of the currency, which, in turn, must result in the central bank launching appropriate monetary instruments, i.e. raising interest rates. These, in turn, will raise interest rates on loans.
On the other hand, one should take into account the possibility of introducing various aid programs by the state after the declaration of peace, e.g. partial cancellation of loans or an interest freeze.
Currently, many borrowers decide to take out additional loan insurance, which most often takes the form of a life policy or in the event of other random events that make it difficult to pay off the liability, e.g. illness or job loss. Credit during the war is usually impossible to regulate precisely for such reasons - loss of source of income, severe damage to health or even death.
Does war loan insurance provide any protection then? Unfortunately, no, because insurers, as a rule, exclude the possibility of paying compensation for random events caused by hostilities. This is clearly stated in the GTC under the "disclaimers" section.
Neither insurer offers a special credit insurance against war. Therefore, in the event of such an event, you cannot protect yourself, but only rely on yourself, the state or the banks themselves.
To sum up: what will happen with a loan in the event of a war largely depends on how the banks react to the situation. Therefore, it is worth explaining here what happens to banks during the war.
In the 21st century, modern technologies make it easier for banks to continue their operations despite the war. Therefore, you should be aware that Polish banks keep copies of all data in electronic form in a specially secured data center (they are even resistant to bombing). On the other hand, online banking enables them to maintain contact with customers, even in closed branches.
The chance that the loan will be forgotten during the war due to the destruction of documents or the lack of contact with the bank is negligible today.
Banks will not forget about their receivables, but during hostilities they may be forced to accept temporary problems with the repayment of installments by borrowers. Therefore, it is highly probable that they will offer their clients to suspend the repayment of principal and interest installments for the duration of martial law in Poland. Other tools are also available to help borrowers pay off their liabilities both during the war and after its end.
It is worth knowing that Polish regulations also in peacetime impose an obligation on banks to enable the borrower to restructure his debt, if it is justified by a deterioration of his financial situation. So, if, for example, the customer is repaying the mortgage and war or other random events make it difficult for him to pay installments, the bank should enable him to restructure the loan by, for example:
temporary suspension of loan repayment,
change in the amount of capital and interest installments,
extension of the liability repayment period, etc.
The impact of the war on loans is difficult to predict precisely, but you should definitely not count on the fact that the commitment will be canceled or forgotten. Banks, however, are prepared for such crisis situations and will certainly launch special procedures to facilitate debt repayment by borrowers.
The best proof of this are the facilitations introduced during the Covid-19 pandemic, which was also an unusual situation. They consisted, inter alia, of on the implementation of simplified procedures for requesting temporary suspension of installments, i.e. remotely and without the need to provide additional documents.
Remember that if you have any doubts, I am happy to offer you advice and assistance. Let's meet, you will find that my help in choosing the best mortgage can be invaluable.
Feel free to comment. Is the topic of credit analysis interesting for you? Let me know in the comment. Will be happy to help clarify all issues. It is important to me that every topic regarding the mortgage is absolutely explained.
Mortgage broker
Michal Kaplon
os.Stefana Batorego 80
60-687 Poznan
Strona www stworzona w kreatorze WebWave.