Thomas White Global Investing
Banking Sector in Poland

September 2011

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Emerging Market Spotlight

Banking Sector in Poland

The malaise deep-rooted in the global financial services industry is now widely perceived to be one of the catalysts that unleashed the economic downturn, sending shivers down the spines of policy makers and investors alike in most major economies. Yet, one Eastern European country and its relatively nascent banking industry quietly stood its ground amid the chaos.

Fast Facts

  • Poland’s banking sector is the biggest banking market in the central and eastern European region.
  • The country’s banking sector is 70% owned by foreign investors.
  • During the global financial crisis, Polish banks were affected by the mortgages issued in Swiss francs.
  • Polish banks could recover relatively quickly, thanks to the 3.8% economic growth last year and the re-pricing of risk.
  • Some of the foreign parent banks have sold their Polish units this year to tide over the crisis in their home markets.
  • Still other foreign banks deem this an opportunity to enter the lucrative Polish market.
  • Poland will have to implement some tough steps to trim down its burgeoning budget deficit, which may eventually affect the country’s growth.


A relatively late entrant among the market-oriented economies of Europe, Poland attracted global investor attention when it earned the distinction of being the only European Union member state to post economic growth amid the 2009 financial crisis. Interestingly, as the banking sector pulled many large economies down the cliff, for this former communist outpost, its banking industry proved to be the true face-saver in its hour of crisis.

Poland and its neighbors are popularly known as the factories of Europe, just as China is called the factory of Asia. However, there is more to Poland than just being the backyard of European manufacturing. The domestic economy, the largest in central and eastern Europe, is also the biggest banking market in the region. The Polish banking sector, which is regulated by the Polish Financial Supervision Authority, is also the largest and the most highly developed sector of the country’s financial market. The aggressive expansion plans of some of the large Western banks present in the country, as well as some of the home-grown players, testify that there is money to be made in the domestic economy. And the recent consolidation spree among banks operating in the highly fragmented market proves that the Polish banking sector is in the pink of health.

Poland’s GDP growth vis-à-vis EU countries during the financial crisis

Region/Country 2007 2008 2009 2010
EU 2.9% 0.7% -4.2% 1.8%
Germany 2.5% 1.3% -5.0% 3.5%
France 2.3% 0.4% -2.2% 1.5%
Poland 6.8% 5.0% 1.7% 3.8%
Czech Republic 6.1% 2.5% -4.8% 2.2%

Source: European Union Economic Forecast, Eurostat

Evolution of the Polish Banking Sector

Before the fall of the Soviet empire and the dissolution of communist rule in Poland, most banks in Poland were state-owned and consisted mainly of cooperative banks. The gradual transformation of the country to a market-oriented economy was initiated during 1992-1997 with the restructuring of some of its financial institutions. While some banks were privatized and the rest recapitalized, the government also introduced some legal reforms that made the sector competitive. The reforms introduced also lured strategic investors into exploring the country’s banking sector. In short, the late 1990s witnessed the flowering of the banking sector, which emerged as a commercially-oriented entity.

To put things in perspective, the number of banks in Poland declined by almost 60% since 1995, thanks mainly to the structural changes that were implemented in the cooperative banking sector. The last decade witnessed rapid changes in the industry with foreign investors making a beeline for the fast-growing eastern European economy. Currently, foreign investors own about 70% of the banking capital in the country. At last count, the number of banking and credit institutions stood at 643, of which 49 were commercial banks. According to a Reuters news report, Italians lead the pack of foreign investors with a 13.3% stake in Poland’s banking sector assets, followed by German, Dutch, American, and Belgian investors, in that order.

At this juncture, it would be interesting to find out why Western European banks decided to move eastward. Many of these banks, which woke up to the reality that there is not much scope for expansion in their saturated home markets, decided to tap the potential of reasonably big neighboring markets such as Poland. Poland also had some other factors going for it such as its accession to the European Union in 2004. Flow of liberal EU funds and remittances from Poles working abroad also helped develop the domestic economy, not to mention the country’s export sector, which thrived on demand from big euro-zone economies such as Germany. These factors, combined with relative political stability, provided the perfect setting for foreign banks to establish their subsidiaries in Poland. Poland’s domestic economy also benefited from the presence of foreign banks during the early years of the country’s economic transformation as these deep-pocketed financial institutions also brought along the finesse and technical knowhow required to transact business in a fast-changing world.

When crisis struck


Source: UCG CEE Research, Financial Supervision Authority, Bank Pekao S.A.

The banking sector in Poland was able to weather the financial crisis without much support from the government. This is because the seeds of the banking sector’s resilience were sown well before the crisis struck. With a conservative foundation, strong banking regulations were already in place, which kept borrowing in foreign currencies under check. Moreover, adherence to EU laws was strictly enforced in the industry. The results were there for all to see during the crisis, as Polish banks were relatively well-prepared before the crisis. Most of the banks in the country followed simple business models, staying away from risky products, which also helped keep them in good stead. However, it won’t be a fair assessment to say that Polish banks weren’t hit by the financial crisis at all. To give a run-up to the situation before the crisis, the easy availability of credit until 2008 was the main driver of growth in Eastern Europe. But Polish companies and households alike, who had gone on a borrowing spree during the credit boom, found it tough to service their debt once the crisis came knocking at their doors. Their woes were exacerbated by the fact that the loans were denominated in foreign currencies such as Swiss francs or euros. And the debt burden increased as the zloty declined. It was feared that the parent foreign banks would pull out money from their subsidiaries to bolster their lending activities back home. Significantly, foreign parents of many Polish banks instead threw their weight behind their subsidiaries through the crisis. Timely intervention by institutions such as the International Monetary Fund and the European Bank for Reconstruction and Development also ensured that Western banks stayed put in Poland. The Vienna Initiative, launched in January 2009, made it mandatory for parent banks to maintain their agreed exposure limits. What’s more, the scheme also gave banks the flexibility to utilize sector support packages announced by their home countries to recapitalize their Polish subsidiaries.

Prominent Banks in Poland

Name of Bank Mcap $bn Ownership
PKO Bank $19.1 Polish Public
Bank Pekao $15.5 Foreign owned
Bank Zachodni $6.3 Foreign owned
ING Bank Slaski $4.1 Foreign owned
BRE Bank $5.0 Foreign owned
Bank Millennium $2.4 Foreign owned
Getin Holding $3.4 Polish Private

Source: MSCI, Bloomberg

At the beginning of 2009, Poland’s banking sector had 18 branches of foreign-owned banks, 51 local banks, and a network of 578 cooperative banks. In addition to these, foreign investors had controlling stakes in about 39 commercial banks, which made up 68% of the banking capital. Last year also witnessed a bit of corporate activity in the sector as GE Money Bank combined with Bank Handlowy, while Fortis Bank Poland became a part of the BNP Paribas Group. Among the major private sector financial institutions in Poland, financial holding company Getin Holding S.A., which comprises banks and insurance companies, stands apart. Controlled by billionaire Leszek Czarnecki, Getin is among the few private banks in Poland not controlled by foreign financial institutions. Apart from its Polish interests, the group has stakes in companies operating in Russia, Ukraine, and Romania. In fact, the merger of the group’s two banking units, Noble Bank and Getin Bank, which was completed in January 2010, has the potential to alter the contours of the Polish banking sector in the future, as pointed out by a news report. Moreover, the fragmented nature of Poland’s banking market also works to Getin Holding’s advantage. Czarnecki hopes to cash in on the weakness of western banking groups and their decreasing risk appetite to expand his fiefdom in the Polish banking space. The owner of Getin Noble bank also expects the domestic banking market to grow by more than 8% a year, according to an FT report.

Percentage of Total Banking Assets Held

Source: Polish Financial Supervision Authority

Under the eagle eyes of the watchdog

All banking activities in the country come under the purview of the Polish Financial Supervision Authority (PFSA), a publicly financed entity established in 2006. Since January 2008, the agency has become the single contact point and watchdog for all segments of the Polish financial market. Even a cursory glance at the PFSA’s report card during the period 2006-2011 would show that not a single financial institution in the country has failed since the regulator took charge. Overall, market conditions have improved significantly over the years despite the financial crisis. The PFSA also ensured that Polish banks had enough liquidity by monitoring the measure even on a daily basis. Polish banks also underwent stress tests along the lines of those undergone by their larger EU counterparts.

The role of the financial services watchdog came into prominence during the financial crisis that rippled through the world in 2009. To the agency’s credit, the Polish banking sector remained relatively stable in 2009. As far as banks were concerned, there was growth in the total deposit base, and loans denominated in Polish currency showed an increase among the housing loans issued. However, there is no denying the fact that the overall economic situation prevailing in the domestic market and elsewhere did affect the functioning of the banks. The general slowdown in economic activity, the weak financial position of corporate clients, and rising unemployment combined to create an uncertain outlook for the financial services sector.

During the crisis, some banks succeeded in securing financial backing from their foreign parents. Most of the Polish banks did not pay dividends for 2008, heeding the advice of the regulator. This prudent dividend policy also helped maintain the stability of the banking segment. The growth in shareholders’ equity spurred the growth of the banking sector and gave a fillip to new lending. Thanks to the implementation of these measures, the average capital adequacy ratio of the country’s banking sector increased to 13.3% at the end of 2009 from 11.2% at the end of 2008, according to the PFSA’s website. To give the breakdown, the PFSA report on the banking sector shows the ratio for commercial banks was 13.2% and that of cooperative banks stood at 13.4%, both of which were well above the minimum requirements. Though new lending picked up, the pace of growth was slower compared to prior years. Simply put, the total value of loans issued to the non-financial sector grew by 5.8%, while loans to businesses slumped by 4.4%, as PFSA data show. On the other hand, loans to households increased by 11.9%.


Source: UCG CEE Research, Financial Supervision Authority, Bank Pekao S.A.

Lessons Learned

Polish banks seem to have turned over a new leaf going by their good earnings reports for the year 2010. Major banks such as the country’s leading public sector lender PKO Bank Polski, BRE Bank, and Getin Noble Bank, all recorded profits last year. According to the Polish Financial Supervision Authority, total banking sector earnings increased by 41% in 2010. Industry watchers attribute the rise in profits to Poland’s strong economic growth, thanks to good domestic demand and growth in exports to Germany as well as the repricing of risk. According to an FT report, the Polish banks are expected to post good results this year as well, buoyed by growth in mortgage lending and the pick-up in corporate lending as companies pump in money into their businesses even as the economy is expected to grow by 4.1%.

Like last year, the dawn of 2011 also witnessed some consolidation in the banking sector. Basically, some of the foreign parents of Polish banks wanted to dispose of their Polish subsidiaries to strengthen their balance sheets, as a report from Financial Times points out. Simultaneously, some foreign banks saw a window of opportunity to enter the lucrative Polish market. For instance, Spain’s Santander acquired a majority stake in Bank Zachodni from the troubled Allied Irish Banks for $6 billion. Recently, Getin agreed to buy German insurer Allianz SE’s struggling Polish banking unit for about $49.3 million. Allianz Bank Polska’s assets in Poland are valued at around $363.0 million. The most recent M&A deal in the country’s banking sector was the acquisition of a majority stake in Greece’s EFG Eurobank’s Polish unit Polbank by Austrian banking group Raiffeisen Bank International AG for about $675 million. Belgian financial services group KBC has plans to sell its Polish unit’s Kredyt Bank, and insurer Warta is poised to repay a loan of $10 billion government aid received during the financial crisis. Meanwhile, Poland’s state-controlled PKO Bank Polski, in which the Treasury holds a 51% stake, has plans to sell shares to the public as part of the privatization process.

Despite the optimism in the air, though, Poland’s banks seem to have slipped into a “once bitten, twice shy” mode. Caution is the watchword for both banks and borrowers as loan-to-value ratios and customer salary requirements are being tightened. Loans denominated in foreign currencies, which had caused much heartburn during the crisis, currently comprise less than a third of fresh loans issued. The level of foreign currency loans taken by households has fallen to 62% in February 2011 compared to 69% at the end of 2008, according to an FT report. Though full-fledged lending to corporates has not picked up yet, banks are eager to issue loans to smaller and mid-sized companies. Poland never really had a housing crisis, yet the financial meltdown had hit mortgage lending as well. Housing finance is making a comeback now, as it is widely believed that real estate prices have bottomed, according to an FT report. But, the rules of the game have changed here too. For instance, real estate developers are now required to show that at least 40% of a particular project has been pre-leased before they can avail of a loan from the bank, a drastic change from the pre-2008 scenario when banks did not think twice to finance even speculative projects.

Looking Ahead

Of course, banks in Poland did react to the crisis by restraining lending, increasing interest rates, and strengthening balance sheets last year. After they emerged from the financial crisis of 2009, these banks started lending again, which is expected to increase by more than 4% this year with retail lending picking up and a modest increase in corporate lending. That said, there are still fears that another global recession may not be a distant possibility. Moreover, the prospect of tighter regulation, which seeks to limit lending in foreign currency to 50% of banks’ total loan portfolio, also looms large over the country’s banking sector. The prospective move would be particularly damaging for some of the country’s foreign-owned banks that would have a majority of their loans disbursed in foreign currencies. Adding to the banking segment’s woes, Prime Minister Donald Tusk hinted at imposing a new tax on banks, which would be an additional burden on a sector already reeling under very high tax rates. However, the latest news reports indicate that the ruling government has put off the proposal to slap taxes on the banks, at least temporarily. Moreover, the foreign parent banks may not be in a position to support their Polish subsidiaries in the event of another financial crisis as Western European banks find the going tough amid the escalating debt crisis in the Euro-zone. Notwithstanding the hurdles to be overcome, Poland’s characteristic resilience in the face of adversity should also hold its banking sector in good stead in the near future.




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