WIBOR, WIRON and POLSTR — What Is Changing

What a reference rate is

A reference rate is a number that, alongside the bank's margin, determines the size of a variable interest rate. The bank does not set it on its own — it comes from an independent administrator and reflects the cost of money on the interbank market. When the rate rises, the interest rate rises, and with it the loan payment.

For years the basic benchmark in Poland was WIBOR. It set the interest rate on a huge number of variable-rate loan contracts. The problem is that the way it was determined relied in part on banks' declarations rather than solely on actual transactions.

Why the reform is happening

European regulations and supervisory expectations aim to base reference rates as far as possible on actual, concluded transactions. This is meant to increase their credibility and resistance to manipulation. For this reason Poland launched a process to replace WIBOR with a new benchmark.

WIRON, based on deposit transactions, was originally indicated as the successor. As work progressed the reform evolved, and attention shifted to a benchmark designated as POLSTR. It is important to remember that this is still an ongoing process, and its details and timetable are set by the institutions responsible for the reform.

What it means for the borrower

The most important point is that the aim of the reform is not to raise payments. Changing the benchmark is a technical operation intended to ensure compliance with requirements and greater transparency. The new benchmark is constructed differently from WIBOR, which is why the switch uses a so-called adjustment spread meant to neutralise the methodological differences.

In practice this means the change of benchmark should be broadly cost-neutral for the borrower. The size of the payment is in any case most influenced by the overall level of interest rates set by the Monetary Policy Council and by the economic situation, not by the name of the benchmark itself.

How to prepare

You do not need to make rash decisions just because the reform is under way. It is, however, worth following your bank's announcements, since it is the bank that will inform you of any change of benchmark in your contract and how it will be carried out. Reliable information about the reform itself is also provided by the supervisory institutions and the benchmark administrator.

If you are worried about the uncertainty tied to a variable rate, then regardless of the reform you always have the option of considering a periodically fixed rate or refinancing your loan on better terms. It is worth basing the decision on an analysis of your own budget rather than on media noise.

Summary: calm rather than panic

The reform of reference rates is a tidying up of the market, not an attack on borrowers' wallets. WIBOR is to be replaced by a new benchmark based on actual transactions, using a mechanism to correct the differences. The process is multi-stage and still under way, so the best strategy is to follow the official announcements of your bank and the supervisory institutions and to make decisions based on your own financial situation.