The banking sector in Poland.
Current situation and trends 2023
The banking sector in Poland plays a crucial role in the country's economy. It has been developing dynamically for years, introducing new technologies and financial products that make it easier for an increasingly wide range of individual and corporate clients to access banking services. However, in recent times, the Polish banking sector has encountered numerous challenges and problems.
According to statistics for 2021, the Polish banking sector's asset-to-GDP ratio was 96%, and it slightly increased compared to 93% in 2020. Poland ranks third from the bottom among European Union countries in terms of this proportion. Despite this, the banking sector, not the capital market and investment funds, is the main provider of financing for the Polish economy. One of the biggest developmental barriers for the Polish banking sector is high fiscal and regulatory burdens, which have had a negative impact on profitability and efficiency, especially in the last few years. The most significant of these are BFG fees, a bank tax levied on bank assets, and a support fund created for borrowers. Additional burdens on the banking sector have been imposed by the provisions of the Act on Aid for Borrowers, which came into effect on August 1, 2022, introducing mortgage holidays for customers with loans denominated in PLN.
Relationship of banking sector assets to GDP (data in %)
Source: Polish Bank Association, European Commission - Europen Economic Forecast, Summer 2022
All of this has led to a downward trend in the valuation of domestic bank stocks, caused not only by Russia's aggression towards Ukraine and growing concerns about global recession but also by potential local problems of Polish banks. Although changes in the prices of Polish bank stocks have followed changes in global and national stock indices, recent declines in stock prices have deepened after the announcement of the law allowing support for borrowers and due to the still unresolved systemic problem of mortgages denominated in foreign currencies, mainly CHF.
As of early 2023, according to the Financial Supervision Authority, Polish banks held 305,000 CHF-denominated mortgages, which, in the event of unfavourable decisions by the European Court of Justice and Polish courts and the lack of a systemic solution to this issue by regulators and banks, could result in very serious reserves in banks' balance sheets. It is estimated that in a negative scenario, the banking sector may be forced to create reserves at the level of tens of billions of PLN. This could change the current good situation regarding the capitalization and liquidity ratios of the banking sector in Poland.
The complicated situation in the Polish banking sector has also been reflected in the ratings agency assessments. On November 2, 2022, Moody's lowered the outlook for the Polish banking sector from stable to negative. The rating change was influenced by the deteriorating prospects for economic growth and significant increases in financing costs and high inflation. In the agency's opinion, rising borrower maintenance costs and rapidly increasing interest rates will contribute to a deterioration in the quality of the loan portfolio, particularly in the case of loans taken out during the historically lowest interest rate period in 2020-2021.
Despite these challenges, we assume that the Polish banking sector will show resilience in the face of various economic and regulatory and legal problems just as it did during the difficult period of the COVID-19 pandemic. Polish banks implemented various measures to support their customers during the pandemic, such as loan repayment vacations and interest rate cuts.
The Polish banking sector continues to invest in digital transformation to improve the efficiency and quality of customer service and develop modern final products based on the new digital economy model. This process is costly but inevitable and will bring banks further improvements in the quality and efficiency of their services for the benefit of customers.
*/ ROA and ROE ratios - the ratio of the sum of the financial result for 12 consecutive months to the average assets and average capital, respectively, for the same period for 13 consecutive months. ROE refers to the aggregate of the commercial and cooperative bank sector (excluding branches of credit institutions), ROA refers to the entire banking sector. NIM ratio - the ratio of interest income from 12 consecutive months to average interest assets in the same period from 13 consecutive months.
Source: UKNF (Office of the Financial Supervision Commission)
Despite a difficult year in 2022, many Polish banks generated higher profits than the previous year. Operating revenues increased significantly due to the positive effect of changes in interest rates. The lower net results of some banks were caused by deep write-offs for one-time events, particularly the portfolio of CHF mortgage loans. The net financial result at the end of January 2023 amounted to PLN 3.1 billion, which was significantly higher by 87.0% compared to the result achieved at the end of January 2022. It can be expected that this trend will continue in the coming months.
Source: UKNF (Office of the Financial Supervision Commission)
Summarizing, the current situation and the trend for 2023, it can be stated that global economic uncertainty, particularly the macroeconomic situation in the European Union and Poland, will significantly improve, resulting in the strengthening of economic activity in the second half of the year. This should have a positive impact on the operating profitability of banks, as the inflationary environment and high interest rates will continue to have a beneficial short-term effect on bank results. Additionally, we can hope that high regulatory and fiscal burdens will decrease, allowing banks to more easily absorb potential reserves or losses from CHF mortgage loans.
Prepared by the DFCM Analysis Team under the direction of Ernest Rybak, Chief Investment Analyst of DFCM
We also encourage you to read our presentation on the current situation of the banking sector in Poland, below is a link to download the presentation. ↓
Polish Bank Association, Poland and Europe in the New Reality, Issue IX, September 2022
(UKNF) Office of the Financial Supervisory Commission, Monthly data of the banking sector as of January 31, 2023.
National Bank of Poland,Financial System Stability, December 2022
Union of Polish Banks, Banking Monitor, December 2022
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