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Grażyna A. Olszewska, Ph.D., assistant professor,
Chair of Business and International Finances, Faculty of Economics,
Kazimierz Pulaski Technical University of Radom.
CHANGES IN THE QUALITY OF BANK CREDIT PORTFOLIOS IN POLAND
IN THE PERIOD OF TRANSFORMATIONS AND THAT
OF THE FINANCIAL CRISIS
Introduction
Restructuring of bad debts is a very complex problem in any circumstances, not only in the situation of
economic transformations. The period of economic transformation is characterized by frequent changes
on the map of the institutional market. In such a situation it is difficult for economic subjects to sustain
continuity of debt servicing. Creating conditions for a proper development of the credit policy system by
means of changes in the field of bank functioning enables these banks effective capital allocation. As
maximum effectiveness of resource utilisation is the essential aspect of market economy, then the basis
for this will be creating a high quality financial system based on the banking system. However, one can-
not speak about effective capital allocation without an effective credit policy of banks. The financial sys-
tem and in particular the banking sector which is its pillar, is as the recent financial crisis revealed, a kind
of a  barometer for economy. As an effective credit policy can help in such important processes as the
systemic transformation, then its inefficiency can also be a source of serious disturbances1.
Causes of bad debt increasing
In literature bad debts are often described as remains of the centrally controlled economy, which is an
erroneous statement. In the producer-dominated economy of deficiency (shortages), unique conditions
arise which eliminate the credit risk for banks. Producers can easily include all costs in the price of prod-
uct without any fear that they will not find buyers. In the previous period there was no problem of repay-
ment of credits which were borrowed by companies. Only the market economy and lack of shortages have
revealed the real risk of losing the creditworthiness by institutional borrowers. A part of bad debts is in-
herited from the monobank system resulting from the inherited asset structure as shaped in the period pre-
ceding the economic reform.2 Following this period all banks created their credit portfolios
independently, hence also bad debts. They can be attributed to internal factors resulting mainly from the
staff s lack of qualifications in the field of credit risk assessment and monitoring3.
In the period of the 2007-2009 financial crisis, the causes of the credit portfolio quality worsening
were different.. The main channels of the financial crisis transmission for the commercial banks in Poland
were the proprietor s channel and macroeconomic channel4. The activities of the proprietor s channel
concerned mainly the influence of foreign owners on the activities of the banks controlled by them and
resulted in a stricter credit policy of these banks than in the case of banks where foreign capital was not
the dominating one. The macroeconomic channel s effect was connected with the decreased external de-
mand due to economic recession in the markets of Poland s main trade partners5.
Quality of credit portfolios
1
M. Mikita, Nowa rola rynku finansowego w gospodarce światowej (New role of the financial market in world
economy), in: J.L. Bednarczyk, S.I. Bukowski, J.Misala (ed.),Globalne rynki finansowe w dobie kryzysu (Global
financial market in the time of crisis), CeDeWu, Warszawa 2009, p. 170-171
2
S. Kawalec, Polska droga restrukturyzacji złych kredytów (Polish way of bad debt restructuring), in: Zeszyty
PBR  CASE No 12/1994, p. 12.
3
A. Ostałecka, Kryzysy bankowe i metody ich przezwyciężania (Banking crises and the ways of overcoming them),
Difin, Warszawa 2009, p. 10-12
4
Polska wobec światowego kryzysu gospodarczego (Poland in the situation of global economic crisis), Narodowy
Bank Polski, September 2009, p.27-28,
http://www.nbp.pl/home.aspx?f=/publikacje/polska_wobec_swiatowego_kryzysu_gospodarczego_2009/polska_wob
ec_swiatowego_kryzysu_gospodarczego.html
5
A. Kacprzyk, Kryzys finansowy 2008-2009  przesłanki, kontrowersje, perspektywy (Financial crisis 2008-2009 
premises, controversies, prospects), in: J.L. Bednarczyk, S.I. Bukowski, J. Misala (ed.), Współczesny kryzys
gospodarczy: przyczyny, przebieg, skutki (Modern economic crisis: causes, course, effects), CeDeWu, Warszawa
2009, p.77-79
114 >2=VH=O B>@3V2;O: 5:>=><V:0, DV=0=A8, ?@02>. !2 2010
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During the 1990s financial crisis, the banks credit portfolio quality clearly deteriorated in 1992 (see:
Table 1). There are no statistics concerning the structure of this debt but it can be assumed, that its pre-
vailing part consisted of credits for economic subjects.
Table 1.
Percentage of difficult credits in total credits of commercial banks in the period of the national
programmes of bad debt restructuring in Poland in the years 1991-1994 (%)
Year
1991 1992 1993 1994
Country
Poland 2.41 19.20 23.80 36.73
R. Chudzik, Kryzys bankowy w gospodarkach postkomunistycznych na przykładzie Czech, Węgier
i Polski (Banking crisis in post-communist economies of the Czech Republic, Hungary and Poland), Bank
i Kredyt 3/1996, p. 20.
Such a high percentage of difficult credits threatened not only specific banks but also stability of the
banking sector as a whole.
An entirely different situation occurred at the beginning of the present crisis. In the first year of the
crisis the percentage of threatened credits in total credits of the banking sector decreased in relation to the
previous year (see: Table 2).
Table 2
Percentage of difficult credits in total credits of commercial banks in Poland
in the years 2007-2009 (%), end of September.
Year
2008 2009
2007
Country
Poland 4.2 3.6 6.1
Source: Informacja o sytuacji banków w okresie styczeń-wrzesień 2009 r. (Information on the situation of banks in
the period between January and September 2009), Komisja Nadzoru Finansowego
http://www.knf.gov.pl/Images/Informacja%20o%20sytuacji%20bankow%202009.09_tcm20-14054.pdf
Table 3
Percentage of threatened credits for economic subjects and households
in banks credit portfolios in Poland in the years 2007-2009 (%), end of September
Credit for economic subjects Credit for households
Year
2007 7.4 4.4
2008 5.6 3.5
2009 10.8 4.9
Source: Informacja o sytuacji banków w okresie styczeń-wrzesień 2009 r. (Information on the situation of banks in
the period between January and September 2009), Komisja Nadzoru Finansowego ,
http://www.knf.gov.pl/Images/Informacja%20o%20sytuacji%20bankow%202009.09_tcm20-14054.pdf
Deteriorated quality of bank credit portfolios was revealed only at the beginning of 2009. It refers
mainly to credits lent to economic subjects. In the case of threatened credits for households, their percent-
age in total credits of the banking sector exceeded the 2007 level very slightly (see: Table 3).
Polish way of restructuring bad debts
The process of bad debt restructuring was carried out alongside enterprise restructuring. It disciplined
negligent debtors, whereas those who regained liquidity were able to start paying their debts off. Difficult
credits were divided into two basic groups  those lent before 1991 and current ones  loaned after 1991.
Banks were ordered not to give credits to clients from the  basic group debtors and were put under the
obligation to re-negotiate their credit agreements in order to create a realistic repayment schedule. They
had a chance of having their loans repaid in the open market or a duty of putting their debtors in liquida-
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tion if previous options had not proved successful. Banks could use the same package of remedies with
reference to other debtors but they retained a possibility of their further crediting1.
Liberalisation of regulations concerning awarding licences for banking activities was the first method
of privatisation. It led to quick development of the market and emergence of many private banks. Imple-
mentation of the new banking law in 1989 resulted in actual and explicit privatisation of the sector2.
Emergence of  nine commercial banks, although still with the dominating shares of the State Treasury,
allowed competitiveness to develop. On the one hand it was an occurrence which had been long expected
and by all means correct. However, the economic situation in the period of transformations showed that
majority of those banks had too low the capital of their own needed in the circumstances of deep market
changes and high economic risk. Hence, in the period from 1989 to 1997, the banking market was charac-
terised by little internal stability. Bank take-overs, liquidation or bankruptcies were frequent then3. In the
beginning the number of banks was growing, in the later period it gradually decreased. In the second
stage of privatization nine banks were privatized. It was carried out on the basis of 3 options:
-ð consolidation option;  public offer option;  multi-stage option.
The consolidation option relied on joining the assets of several banks within a holding partnership and
then privatising it with the help of a foreign investor. This option was never used in practice.
The public offer option was carried out on the basis of the capital market. It was the most common practice.
In the case of the multi-stage option, three privatisation stages had been assumed. The first stage as-
sumed that banks would have a chance to negotiate a merger among themselves; the second one assumed
an offer of a minority interest in these banks to investors via public bidding; the third and the last one was
to be started if the previous ones had not been successful and it relied on transferring the shares of banks
not privatized within the Common Privatisation Programme to National Investment Funds4.
An analysis of the changes in the number of banks indicates that in the first period covered by the
analysis the number of banks rose whereas in later years this number declined gradually. Opponents of
the banking sector privatisation by creating new banks pointed out that the banking system was weakened
due to its fragmentation. Undercapitalised banks, having no market experience, contributed to a rise of
bad debts in the sector.
Table 1
Number of banks in Poland in the years 1991-2009 (operating at the end of September in a given year;
banks in bankruptcy or under liquidation are not included)
Year
Number
78 82 87 82 81 81 81 83 77 73 69 59 58 57 61 63 51 52 51
of banks
Source: author s own development on the basis of  Sytuacja finansowa banków w I kwartale 2006 roku (Finan-
cial situation of banks in the 1st quarter of 2006); www.nbp.pl/Publikacje/nadzór-bankowy/pdf/synteza2006-3.pdf
and for the years of 2007-2009  Informacja o sytuacji banków w okresie styczeń-wrzesień 2009 r. (Information on
the situation of banks in the period between January and September 2009), Komisja Nadzoru Finansowego
http://www.knf.gov.pl/Images/Informacja%20o%20sytuacji%20bankow%202009.09_tcm20-14054.pdf
1
M. Pawłowska, Wpływ procesów konsolidacyjnych na poziom konkurencji i efektywność systemów bankowych 
wyniki badań ilościowych (Effect of consolidation processes on the banking sector competitiveness and effectiveness 
results of quantitative research) in: Konkurencyjność sektora bankowego po wejściu Polski do Unii Europejskiej
(Banking sector competitiveness following Poland s EU accession), Zeszyt BRE Bank  CASE, No 76/2005, p. 25-47.
2
See: The Banking Law Act and the Act on the National Bank of Poland of 31 Dec. 1989in the Journal of Laws of
1989 N4. The consolidated text of both Acts was published in Dziennik Ustaw of 1992, No72 item. 359.
3
J. Majewska, Z doświadczeń restrukturyzacji banków w latach 80.i 90 (The experience of bank restructuring in the
1980s and 1990s),
http://www.nbportal.pl/library/-pub_auto_B_0100/KAT_B4844.PDF
4
See: A. Szelągowska, Znaczenie funduszu prywatyzacji banków polskich w procesie restrukturyzacji sektora
banków w Polsce (The significance of the Polish Bank Privatisation Fund in the banking sector restructuring in
Poland), Bank i Kredyt 6/2004, p. 74-77.
116 >2=VH=O B>@3V2;O: 5:>=><V:0, DV=0=A8, ?@02>. !2 2010
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
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Still another method was basing privatisation of banks being joint-stock companies of the State
Treasury on the sale of share packages in the capital market via a public bid offer. This method proved
effective with reference to small banks. In the case of medium-sized and large banks, the problem of capi-
tal valuation turned out to be a barrier.
The last method of banking sector privatisation was to allow foreign private banks to enter the Polish
market in the capacity of strategic investors. Great hopes were cherished that they would help quick pri-
vatisation of small and medium-sized banks and solve the problem of undercapitalisation.
Conclusions
The financial crisis of the early 1990s in Poland was a serious threat to the developing banking system.
Adoption of a specific way of bad debt restructuring was of great significance for the future of the sector.
Lack of support might have made its further development difficult. Similarly, excessive support from the
state might have  demoralised banks by freeing them from responsibility for their decisions. It can be
stated that to a great extent we owe sustainable high quality of bank credit portfolio in Poland to the re-
structuring programmes implemented in those days. Quality deterioration of this portfolio can be ac-
counted for by an economic downturn in the main markets but it does not threaten stability of the banking
sector and savings of depositors. Reaction of the latter to the worldwide financial crisis proves their high
trust for domestic banks.
Bibliography
1. Chałaczkiewicz M. Czynnik własnościowy a efektywność sektora bankowego. Część I  przegląd literatury
(Ownership factor and the banking sector effectiveness. Part I  literature review), Bank i Kredyt 9/2004, p.
18-19.
2. Chudzik R., Kryzys bankowy w gospodarkach postkomunistycznych na przykładzie Czech, Węgier i Polski
(Banking crisis in post- communist economies of the Czech Republic, Hungary and Poland), Bank i Kredyt
3/1996
3. Informacja o sytuacji banków w okresie styczeń-wrzesień 2009 r.(Information on the situation of banks in
the period between January and September 2009), Komisja Nadzoru Finansowego
http://www.knf.gov.pl/Images/Informacja%20o%20sytuacji%20bankow%202009.09_tcm20-14054.pdf
4. Kacprzyk A., Kryzys finansowy 2008-2009  przesłanki, kontrowersje, perspektywy (Financial crisis 2008-
2009  premises, controversies, prospects), in: J.L. Bednarczyk, S.I. Bukowski, J.Misala (ed.), Współczesny
kryzys gospodarczy: przyczyny, przebieg, skutki (Modern economic crisis: causes, course, effects), CeDeWu,
Warszawa 2009
5. Kawalec S., Polska droga restrukturyzacji złych kredytów (Polish way of bad credit restructuring), in:
Zeszyty PBR  CASE No 12/1994.
6. Majewska J., Z doświadczeń restrukturyzacji banków w latach 80.i 90 (The experience of bank restructuring
in the 1980s and 1990s), http://www.nbportal.pl/library/-pub_auto_B_0100/KAT_B4844.PDF
7. Mikita M., Nowa rola rynku finansowego w gospodarce światowej (A new role of the financial market in
world economy), in: J.L. Bednarczyk, S.I. Bukowski, J.Misala (ed.),Globalne rynki finansowe w dobie
kryzysu (Global financial markets in the time of crisis), CeDeWu, Warszawa 2009.
8. Ostałecka A., Kryzysy bankowe i metody ich przezwyciężania (Banking crises and the methods of overcom-
ing them), Difin, Warszawa 2009.
9. Pawłowska M., Wpływ procesów konsolidacyjnych na poziom konkurencji i efektywność systemów
bankowych  wyniki badań ilościowych (Effect of consolidation processes on the banking system competi-
tiveness and effectiveness  results of quantitative research), in: Konkurencyjność sektora bankowego po
wejściu Polski do Unii Europejskiej (Competitiveness of the banking sector following Poland s EU acces-
sion), Zeszyt BRE Bank  CASE, No 76/2005.
10. Polska wobec światowego kryzysu gospodarczego (Poland and the worldwide economic crisis), Narodowy
Bank Polski, September 2009,
http://www.nbp.pl/home.aspx?f=/publikacje/polska_wobec_swiatowego_kryzysu_gospodarczego_2009/pols
ka_wobec_swiatowego_kryzysu_gospodarczego.html
11. Szelągowska A, Znaczenie funduszu prywatyzacji banków polskich w procesie restrukturyzacji sektora
banków w Polsce (The significance of the Polish Bank Privatisation Fund in the banking sector restructur-
ing in Poland), Bank i Kredyt 6/2004, p. 74-77.
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