Polish banks Lucky lenders 2014 The Economist

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Aug 23rd 2014

SOPOT

From the print edition

Polish banks

Lucky lenders

A healthy economy and modern offerings have boosted Poland’s banks

JUST as Poland’s economy and foreign-
policy clout have grown quietly but
significantly, so its banking system has
become one of Europe’s little-known star
performers. Poland’s young, technophile and
internationalised elite have worked out how
to make money as bankers to conservative
and traditionally borrowing-shy consumers.
Fortuitously, the business model they arrived
at has kept them away from the assets that
fared worst during the financial crisis.

Zbigniew Jagiello, the boss of PKO BP, the
country’s biggest bank, gives most of the
praise to the wider economy and to sensible public policy. Since his bank is partly state-
owned, he is being astute in offering credit to his biggest shareholder. But the state has also
benefited from the banks—directly in the form of steady dividends from PKO BP, and
indirectly from not having to bail out ailing lenders on the scale of so many other European
countries. “Happily, Poland was not the centre of the financial world,” as Mr Jagiello
delicately puts it.

Most of the rest of Poland’s banks are owned by foreign
parents: Bank Pekao is majority-owned by Italy’s UniCredit;
the third-biggest, Bank Zachodni WBK, by Santander of Spain.
Foreign ownership was useful in the crisis, as banks provided
liquidity to their small Polish subsidiaries. The parents were
well advised to help out; in some cases, the Polish bank has
been the most profitable bit of the group.

For example in 2013 mBank was one of the few star
performers among the operations of Commerzbank, a
German group. It was one of the first entrants into mobile
banking, winning plaudits for its digital efforts. It announced its
first billion-zloty quarter of revenue on July 30th, with net
profits of 325m zloty ($107m), despite low interest rates
hobbling the entire sector.

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Poland

Though boring in their investing and lending, Poland’s banks
are innovative in service. Because the country built its banking system essentially from
scratch, it was never hampered by legacy practices such as paper cheques. Poland is the
European leader in contactless payments. Alior, another young bank (and one of the few
without a majority foreign partner) has targeted some of Poland’s rural “unbanked” (30% or
so of the population do not have a bank account). Alior’s “Kill Bill” campaign promised free
and easy payment of utility bills, and signed up many customers for accounts and loans.
Idea, a rival, asks potential small-business customers for the passwords to their existing
online-banking facilities; after a quick scan of their past transactions it instantly makes a loan
offer.

Factors beyond the control of bankers also helped. Poles did not over-extend themselves
with mortgages, as many other Europeans had, and so took less of a shock when the crisis
hit. One problem was that, like some other central and eastern Europeans, many Poles took
out property loans in Swiss francs and saw their payments balloon as the zloty weakened
against the franc. But the regulators demanded stricter credit criteria for such loans, limiting
the damage the (now-banned) practice did to the economy. A sudden further weakening of
the zloty, or sharply higher interest rates in Switzerland, are among the few potentially big
risks to the banking system, says Pawel Uszko of SNL Financial, a business-intelligence
firm.

But SNL’s underlying numbers show Poland’s banks in good shape. By international
standards, the loans extended to customers are backed by plenty of equity, meaning the
banks have buffers to weather a medium-sized storm. Their costs are under control. And
with a return on equity of 10.9% in 2013, they compare favourably with almost all
neighbours, east or west.

From the print edition: Finance and economics

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