With Poland experiencing the smallest increase in household borrowing since 1998 and with the cost of loans at the highest in the past two years, the Polish Financial Supervision Authority (KNF) has been prompted to relax rules for banks in an effort to jump-start the loan market.

Credit growth decelerated to 4.6 percent in August, year-on-year to compared 12.4 percent in December, the National Bank of Poland reported.

The average interest rate on złoty-denominated home loans was 6.9 percent in June, the highest since 2010, NBP data shows. That compares with a drop in euro-zone mortgage rates to 3.36 percent, according to data from Austria’s central bank.

Weaker credit growth was one of the key reasons for the steepest dip in Poland’s domestic demand in three years, in the second quarter of 2012. The regulator will amend its recommendations for banks to “stop the decline in consumer lending,” Andrzej Jakubiak, head of the KNF said.

“Restrictive regulations have been the main driver of a sharp decline in bank consumer lending,” noted Radosław Bodys, chief economist at PKO Bank Polski. The changes “should stimulate bank consumer lending,” he added.

Poland A.M.