There is a famous saying that banks are the lifeblood of the economy. This is also true for Poland, although the ratio of bank assets or loans to GDP is one of the lowest in the European Union. The banking sector is the main source of financing for the Polish economy, and the level of banks’ funds has a major impact on the possibilities of financing the country’s development programs and its economic growth.
At the end of 2022, the lending potential of the Polish banking sector amounted to approximately PLN 417 billion. – According to a report by McKinsey & Company consulting company. It is worth paying attention to 2021, when capabilities decreased by 20% and then by another 1%. In 2022
The decline in lending potential in 2021 was mainly due to the increase in the BOJ’s reference rate, which contributed to a decline in the value of fixed-rate bonds held by banks (measured at fair value through equity). There was also a clear negative impact of the provisions on Swiss franc mortgages, and in 2022 also on credit holidays.
In the years 2014-2022, the loan portfolio of the Polish banking sector grew by an average of PLN 53 billion per year (at the end of 2022 it was worth about PLN 1.55 trillion). McKinsey experts have estimated that it is not the supply of credit that determines and continues to determine the size of the loan portfolio, but rather the demand for it.
– The current lending potential of the Polish banking sector, estimated at about PLN 420 billion, is much lower than in other EU countries. However, the Polish banking sector can realize approximately PLN 1 trillion of credit potential using only the tools already available. – Comments by Rafael Kozlowski, expert from McKinsey & Company and former Vice President of PKO BP.
The lending potential in relation to Poland’s GDP is lower than in a number of European countries. It reaches 13.5 percent. GDP, while in Hungary it is 17.5%, in Portugal it is 27.4%, and in the Czech Republic it is 30.4%. GDP, and in Spain up to 36.9 percent. GDP – according to analysis.
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McKinsey & Company
The ability of Polish banks to lend in the future will also indirectly depend on the Monetary Policy Board’s decision on interest rates. If they remain or decline, the lending potential of the Polish banking sector should increase, as happened in 2020. This will be possible thanks to high interest income and good profits, accumulation and building of capital, which have also increased recently thanks to lower bond yields.
The discussion about the state of the Polish banking sector has been ongoing for years, especially after the imposition of the bank tax in 2016 (which led to a sharp decline in profitability and limited the possibility of developing lending), and later during the pandemic during almost zero interest rates (another big blow). for profitability). The most recent was in 2022, when banks’ capital was shrinking significantly (due to credit holidays and the decline in the value of Treasuries).
Bankers often repeated that capital was too low to respond to the needs of the development of the Polish economy. This was recently commented on in an interview with Business Insider Polska by, among others: João Bras Jorge, President of Millennium Bank, and Wojciech Kemplowski, Vice President of BNP Paribas.
Hidden potential in state-owned banks
It is worth paying attention to the concentration of lending in the Polish banking sector: In 2022, almost two-thirds of the potential was in banks with Polish majority capital, with the vast majority concentrated in three entities: Gospodarstwa Krajowego Bank (28% of total market potential), PKO BP (18% of potential) and Pekao (11%). Cooperative banks (including SGB and BPS) were responsible for a total of 8%. Potential – according to McKinsey analysis.
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Foreign banks accounted for 36 percent. Lending capabilities. In this group, half of the potential of Santander Polska Bank is concentrated. The spreads are derived from capital ratios set by banks. For example, BGK has a TCR (ratio of total capital, i.e. own funds in relation to risk-weighted assets) which is significantly higher (29%) than other participants. In contrast, the group of other banks with Polish capital and banks with foreign capital is characterized by a very similar average TCR ratio (17%). Some foreign banks, such as mBank or Millennium, have mortgages in Swiss francs in this regard.
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McKinsey & Company
“When considering lending potential, it should be noted that any mergers and acquisitions within the sector will entail a reduction in available lending potential, also due to concentration limits, unless accompanied by the issuance of new shares.” The report reads. Paying dividends generally also reduces this possibility. Every change in funds for the sector by PLN 1 billion currently results in a change in lending potential of about PLN 8 billion.
Scenarios to increase lending possibilities
There are also other factors that may significantly affect the lending potential of the Polish banking sector. Regulations are very important. In October 2023, a package of laws came into force which includes provisions on so-called AT1 instruments (Additional Level 1, for example, the famous Cocos).
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“Assuming a similar share structure to the Spanish banking sector, the issuance of these instruments with an additional increase in the share of T2 instruments (Tier 2 capital, e.g. subordinated bonds – ed.) would allow banks in Poland to increase credit potential. From the sector By PLN 190 billion.Another event “A factor that may significantly affect lending potential is the reduction in the average risk weight (currently in the sector it is 96 percent), mainly by increasing the share of the Internal Rating Method (IRB) in calculating requirements Capital,” wrote McKinsey experts.
IRB (Internal Rating Based) is an internal rating method used by banks to reduce risk-weighted assets, which – assuming the same capital – allows for increased capital ratios. In other words, an IRB allows you to lower your capital requirements.
“If we again take the Spanish sector as a reference point with an average risk weight of 66 percent, the lending potential of the Polish banking sector could increase by another PLN 368 billion, especially in banks with Polish majority capital. If these two scenarios coexist,” she added. This potential could reach PLN 975 billion, according to the report.
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McKinsey & Company
Increasing consumer protection is one of the main challenges
— Banks in Poland face challenges that require changes to their business and operating models. These challenges include the ongoing digitization of banking services and the use of artificial intelligence in internal processes, the trend towards consolidating the position of consumers and depositors, and new regulatory requirements and burdens, commented Kozlowski.
A particularly important factor from the Polish point of view seems to be that of increasing consumer protection. Banks in our country incur costs amounting to tens of billions of zlotys due to mortgages in Swiss francs.
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— Interventions to protect and empower consumers have cost banks in various countries between 15 percent and 50 percent of their own money. These interventions appear to be an element of shaping a new social contract, in which the distribution of power between the consumer and financial institutions changes towards a distribution of benefits and risks that will be seen as more balanced, fair and just, he says. Kozlovsky.
He adds that consumer protection will become increasingly important in ESG areas, where environmental issues dominate today. Over time, social issues may rise to the forefront of this agenda.
Author: Maciej Rudki, journalist at Business Insider Polska
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