As Spain heaves a sigh of relief at the helping hand its banks are getting from the EU, Poland's bank executives insist that local financial institutions are well placed to ride out the turmoil in the Eurozone.
Polish banks posted a record profit of PLN15.7bn (€3.6bn) in 2011, 37% more than in 2010, and the sector looks set to earn more or less the same in 2012, despite much more difficult macroeconomic conditions. "I'm being cautious, but it shouldn't be a bad year," says Krzysztof Pietraszkiewicz, head of the Polish Banking Association, who expects banking profits in 2012 to range from 3% more than last year to 8% less.
However, the make-up of those profits is likely to change as banks scale back mortgage and consumer finance lending, and ramp up corporate lending, especially to small and medium-sized enterprises. "This year, there will probably be a drop in mortgage loans and in 2013 we will see a mild recovery," says Mateusz Morawiecki, CEO of Bank Zachodni WBK, a recent acquisition of Spain's Santander, one of that country's most solid banks and one which is now the third largest player on the Polish market.
Poland's real estate prices still have not recovered from the hammering they received in the 2009 downturn, and developers are also finding it increasingly difficult to get financing. Now all new projects need a very high level of pre-sales or pre-leases to even get a bank to take a second look. "I'm not a big fan of cement in the economy," says Morawiecki. "I'm very careful not to repeat the mistakes that happened in Ireland and Spain."
Polish borrowers and lenders are still smarting from the lesson administered by the country's affair with foreign currency loans - largely those denominated in Swiss francs. Such loans were very popular because Swiss interest rates are much lower than those set by Poland's National Bank, but the crisis caused a reversal of the zloty's long-term appreciation trend against the franc and the euro - leaving several hundred thousand mortgage holders owing more than the value of their loans.
Although new forex loans are now rare - Pietraszkiewicz says out of 13,000 mortgages issued in February, only 1,200 were not in zlotys - they still make up almost 60% of outstanding mortgages and the worry is that if Poland's economy slows or unemployment rises, more borrowers will get into trouble. "Both banks and borrowers are much more aware of the risk," says Andrzej Jakubiak, head of the Polish Financial Service Authority, the banking regulator, which has clamped down on forex lending by increasing standards to such a level that very few banks offer anything but zloty mortgages.
Despite the problems with forex mortgages, very few are delinquent; only 2.5% of mortgages are endangered. That is in large part because such loans were mostly made to upper middle-class clients in large cities, people who are still doing well despite the crisis in other parts of the EU. For the sector as a whole, non-performing loans are about 7%, a number that shows signs of having stabilised.
Polish banks have a Tier 1 capital ratio of 12%, the core measure of a bank's financial strength, higher than in many west European countries. "We are very conservative when it comes to quality of capital," says Jakubiak, whose agency has pressured many foreign-owned banks not to pay out dividends this year in order to beef up capital.
About two-thirds of Polish banks are owned by foreign parents - mostly Western European banks - and there had been worries that the Eurozone crisis could rebound on Poland if those banks decided to deleverage their Polish operations and siphon capital back to their home banks. "If there is a problem with those banks, it could be a problem for Poland," worries Marek Belka, the central bank governor. "If bad things happen, people tend to run to so-called safe havens."
However, that has not happened yet in Poland. One reason is that Polish laws make management liable for any actions that harm a Polish business. "If any banker sends capital to head office in a way that harms the Polish subsidiary, he'll be getting a swift visit from the prosecutor's office," says one banker.
Another is Jakubiak's office, which closely monitors interbank flows to be sure that nothing untoward is happening. Finally, Polish banks are very profitable, often the only bright spot on the landscape of otherwise troubled European institutions. That was the reason that when Germany's Commerzbank said it was limiting lending throughout the region, it specifically excluded Poland. "The return on equity is much higher here than in western Europe," says Morawiecki, who adds that he see no sign of a "credit crunch" on the Polish market.
It was that sort of environment that brought Santander to Poland - buying Bank Zachodni WBK in 2010 for €3.1bn from the troubled Allied Irish Banks and then buying the smaller Kredyt Bank from Belgium's KBC earlier this year.