Banking on a challenging year

The past several years have been good to Poland’s lenders. But lower interest rates and new regulations could mean that will change in 2015
Judging by the overall sentiment in the banking sector and the results Poland’s lenders have recently reported, banks in the country are riding high. Assets and net income have grown while equity levels and capital adequacy ratios meet regulators’ requirements. In 2014, banks’ total net profits in Poland grew by 7.1% from the previous year to 16.2bn złoty, according to data from Poland’s statistics office. Total assets in the sector grew by 8.0% to 1.53tn złoty.
To add to the rosy picture, last year, the country’s financial regulator, the KNF, carried out stress tests of 15 lenders in Poland which together accounted for 72% of the sector’s assets. All but two of the banks passed, and the pair that failed quickly increased their capital positions to satisfactory levels, the regulator said. But this year, financial results could change significantly, according to a recent KNF survey, the aggregated net profit of the banking sector is expected to decline by as much as 10.3% this year.
Difficult environment
Though it has shown strength over the last several years, experts share the view that 2015 may be a difficult year for the sector. “Despite positive forecasts for the economy and consumption, low interest rates and higher Bank Guarantee Fund contributions will have a negative impact on banks’ profits this year,” said Stefan Kawalec, president at Capital Strategy and a former finance minister responsible for the reform of the sector in the early 1990s.
A reduction of the Lombard rate (the rate Poland’s central bank charges on loans to other banks) to 2.5% last year cut the maximum interest rate a bank can charge on consumer loans to 10%, limiting banks’ revenues from credit cards and consumer loans. A further decline could result from new regulations on bancassurance (insurance sold by banks) and a cut in the rates banks can charge for card-based transactions (called interchange fees) to a limit of 0.2% for debit card payments and 0.3% for credit card payments, Kawalec pointed out.
Piotr Sadza, financial services industry propositions leader at Deloitte Central Europe, stressed that while retail banking has been the growth driver for the sector over the last few years, the corporate segment is now more likely to drive further expansion. “After years of limiting their indebtedness, Polish companies are now declaring an increase of both investments and employment, which should directly translate into higher revenues for banks,” he said, stressing that revenue from corporate banking activities is less sensitive to interest rate fluctuations.
At the same time, banks could have a tough time maintaining profits from retail activities, especially with lower profitability from consumer loans, decreased interchange fees and a potentially troublesome Swiss franc mortgage-loan portfolio. “Banks will not only increase fees and commissions, but also evaluate consolidation and further cost optimisation opportunities, especially in their retail networks,” Sadza explained, adding that banks would “deploy more advanced systems” to obtain more revenue from each customer.
“This year the sector is subject to much stronger negative pressure than last year,” said Józef Wancer, CEO of BGŻ. “Net interest income may be affected by lower interest rates, while net fees and commissions may decline due to a reduction of interchange fees and the implementation of Recommendation U [which limits bancassurance activity].” More negative factors may be linked to Swiss franc-denominated mortgages.
“However, it is the almost doubling of banks’ contributions to the Bank Guarantee Fund that could have the most severe effect,” Wancer stressed. Each year, banks make contributions to the fund, which operates Poland’s deposit guarantee scheme. In 2015 banks may be forced to earmark some 1bn złoty more for such contributions than they did in 2014.
‘A significant Swiss franc loan portfolio is an important economic and political risk factor for Polish banks, though not a dramatic one’
Swiss franc troubles
When the Swiss National Bank decided to unpeg the franc from the euro early this year, concerns were raised about how Polish lenders – and borrowers – would cope with situation. So far, however, there has been no significant impact. According to the KNF, at the end of 2013 there were some 562,500 Swiss franc-denominated mortgage loans administered by Polish banks, accounting for 31.8% of the total number of mortgage loans. Their average value at the time was 241.2m złoty. “The impact will depend on the solutions that are adopted,” Kawalec said. “A significant Swiss franc loan portfolio is an important economic and political risk factor for Polish banks, though not a dramatic one.”
Sadza agreed that future legal solutions will be crucial. “The impact on the sector’s results should be limited. However, potential supervisory decisions or legal actions leading to the obligatory conversion of foreign-currency loans to złoty at non-market rates may have a detrimental impact on the financial results and stability of the banks,” he explained. “However, I don’t expect such radical solutions to be implemented in Poland.”
Competition and consolidation
A challenging market environment usually fuels consolidation. M&A activity continues in Poland’s banking sector and more deals are in store. Alior Bank’s owners have been looking for an investor for more than two years. Other possible targets include Raiffeisen Polbank and, according to reports, the Polish unit of Deutsche Bank. Andrzej Jakubiak, head of the KNF, has spoken out against further consolidation, saying it has already reached an “optimal” level in Poland. Market players do not seem to share his view.
“The level of consolidation in the Polish banking sector is well below the European average,” said Sadza. “It is also worth remembering that a number of smaller market players generate relatively low revenues, which will be subject to a lot of pressure. This may force further consolidation.”
“From the point of view of banks and their results, further consolidation would be justified. However, the participation of the largest lenders in consolidation would not be desirable in view of the banking systems’ stability and the interest of customers,” Kawalec said. “The KNF opposes further mergers among the biggest banks and hopefully it will be able to withstand the pressure,” he added.
“One of the prerequisites for the future consolidation is a possible decline in profitability, which may also result from stricter regulation – the EU’s capital requirements directive for example,” Wancer added. He also stressed that the level of consolidation in Poland is low and that some foreign entities could be forced to leave the Polish market as part of their restructuring processes.
Whatever happens, it is clear that 2015 will prove much more difficult for banks in Poland. Whether the sector will remain one of Poland’s most profitable will depend on how well they meet those challenges.


Net financial result

2014: 6.76%

2015 (forecast): -10.33%

Net interest income

2014: 6.89%

2015 (forecast): -0.47%

Net fees and commissions

2014: 2.78%

2015 (forecast): 5.70%

Total assets

2014: 9.39%

2015 (forecast): 5.06%

Income from corporate loans

2014: 8.21%

2015 (forecast): 14.38%

Income from consumer loans

2014: 3.85%

2015 (forecast): 13.60%

Income from mortgage loans

2014: 5.51%

2015 (forecast): 3.55%

Total deposits

2014: 7.1%

2015 (forecast): 7.2%

Source: KNF. Based on data from banks holding 86.9% of the sector’s assets.


In a bid to remain attractive to retail customers in an ever-changing environment, six Polish banks, including the country’s biggest lender, PKO BP, have launched a mobile payment application named BLIK. The app allows for payments, cash withdrawals and transfers with the help of codes generated by a mobile phone. The move makes sense in a country with an estimated 3.5 million mobile banking customers. Alior Bank, Bank Millennium, BZ WBK, ING Bank Śląski and mBank have joined PKO BP in the BLIK system. A month after its launch in early February, BLIK had 500,000 users. Poland’s second largest lender, Bank Pekao, is developing its own mobile payment app.


Before the global financial crisis especially, many Poles took out mortgages in Swiss francs, since the interest rate on such loans was much lower than on złoty-denominated mortgages. However, currency fluctuations have caused borrowers some headaches. So far, however, defaults have not become an issue for Poland’s banks.
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