Poland’s largest bank, the state-owned PKO, is operating without a head while the ruling party searches for a ‘suitable’ CEO. Jan Cienski reports from Warsaw.

There is an increasingly fierce war being waged for Polish banking customers – small and medium-sized banks are battling for the booming mortgage market while banks ranging from Greece’s Polbank EFG to US-based Citi are planning rapid expansion – but the country’s largest bank has been without a general for 10 months.

PKO BP, which has about 20% of the banking market, has been leaderless for political reasons – it is 51.5% owned by the state, and the government wants the new chief executives to be a politically safe pair of hands.

The lack of leadership comes at a time when PKO is about to lose its leading position to Pekao, owned by Italy’s UniCredit, which is in the midst of absorbing most of the assets of BPH, Poland’s third-largest lender and formerly owned by Germany’s HVB, acquired by UniCredit in 2005.

The drift at the top has not yet been reflected in the bottom line. PKO last year reported earnings of 2.1bn zlotys (€558m), up from 1.7bn zlotys a year earlier, but its assets grew by about 8%, slower than many of its more aggressive rivals.

“These signs of weakness aren’t easy to recognise by non-specialists and they can be safely ignored by politicians but they are real nonetheless,” says Maciej Majewski, a banking analyst for consulting firm Deloitte & Touche.

Sinking feeling

Mr Majewski compares PKO with a large ship. “Even without a functioning crew on the bridge that doesn’t mean that there will be a quick worsening of its position. It won’t sink in a year, but the consequences of the current interregnum will last for years.”

In a recent review of the bank, rating agency Moody’s wrote: “We view the absence of a management board chairman/president as a material risk.”

PKO has long been a choice political morsel for the government of the day. In a country where about three-quarters of the banking sector is in foreign hands, PKO remains by far the largest financial institution left under Polish control. For governments wanting to exert influence on the economy, PKO is central to dreams of creating a financial national champion.

Andrzej Podsiadlo, the previous CEO who had been nominated by the former left-wing government and was widely seen to be competent and professional, quit in October when it became obvious that the conservative Law and Justice party (PiS) government was conducting a purge of managers at state-controlled companies, replacing them with political loyalists.

When the PiS narrowly won the September 2005 elections, it promised to scrap the past practice of stuffing political hacks into top jobs and instead staff senior posts through open contests. Not much came of that pledge, and political connections are now seen as the most important criterion for promotion.

Jaroslaw Kurski, a PiS politician from the Baltic coast, recently put it bluntly: “After the PiS’s victory, no activist or supporter of our party who bled for us during the election campaign can be allowed to suffer from hunger or want. These people have to take control in a satisfactory way of the government-controlled sector.”

The result has been disarray at PKO.

After Mr Podsiadlo left, Slawomir Skrzypek, the deputy mayor of Warsaw when Lech Kaczynski, Poland’s president, had been the mayor, temporarily took his place. Mr Skrzypek had no banking qualifications and experience, and so was unable to meet regulatory requirements to permanently take the top job. Instead, in January he was made the governor of Poland’s central bank.

Unqualified candidates

His replacement was supposed to be Kazimierz Marcinkiewicz, a former prime minister who had been shoved aside last summer by Jaroslaw Kaczynski, the president’s twin brother. The choice of Mr Marcinkiewicz, a former physics teacher with no financial background, caused widespread ridicule and aroused protests. In the end he was cut loose by Jaroslaw Kaczynski and made do with a London-based post at the European Bank for Reconstruction and Development.

Since then the board has held three contests without choosing a new permanent CEO.

One problem is that a state-owned institution’s salary is limited to just 15,000 zlotys (€4000) a month, a fraction of what a senior manager can earn in the private sector. A second issue is that many professional bankers are worried about the political pressures that come with the job. And a third factor is that none of the candidates so far have been seen by Mr Kaczynski to be completely politically reliable.

Reliability is crucial because the government wants to do more than have PKO battle to remain Poland’s largest bank – the centre-point of PKO’s recent strategic review. The government is thinking of having PKO join forces with the postal bank and PZU, the government-owned insurance company.

The problem with that vision is that PZU is embroiled in a bitter, and potentially very costly, dispute with Eureko, the Dutch insurance group, which is suing the Polish government for backing away from a promise to sell it a controlling stake in PZU.

As long as the quarrel continues to drag through the courts, the prospects of creating a national financial giant remain remote, admits Pawel Szalamacha, the deputy treasury minister.

But whoever takes over management will have more prosaic tasks, namely shoring up PKO’s leading position in Poland. The strategic review, adopted recently despite the lack of a CEO, calls for PKO to double its earnings to 4bn zlotys by 2012 and to control a third of the Polish market.

The bank has some built-in advantages – it controls by far the country’s largest retail network, 1300 branches and another 2000 franchise offices. Many of its customers are older and less financially sophisticated, which means they will more likely look for investment vehicles and mortgage loans at their home branch, says Maciej Materna, a banking analyst for Bank Millennium. That gives PKO cheaper access to cash than smaller upstarts such as Getin Bank, which has to rely on the money market to acquire funds.

But PKO is by most accounts overstaffed, although for political reasons personnel reductions are unlikely.

Corporate growth

PKO also needs to grow its corporate banking arm, an area that is dominated by large foreign banks. The bank intends to concentrate on small and medium-sized companies, the type of business that might be more amenable to a Polish institution.

PKO also has foreign plans. It intends to spend $30m this year and $50m in 2008 on building Ukraine’s Kredobank into the fifth largest player in that market. There are also plans to open a branch in London this summer, catering to the hundreds of thousands of Poles who have migrated there in recent years.

But whoever becomes PKO’s new CEO will have to put a personal stamp on its strategy. This will come at a time when US-based GE Money Bank looks likely to buy 200 BPH branches from UniCredit, Polbank hopes to add 130 branches, Scandinavian Nordea wants to open 200, and Citi and Deutsche Bank are each looking at opening more than 60 offices.

The danger for PKO running on automatic pilot is clear.

“The bank is in long-term decline,” says Mr Materna. “Management may wake up after years of drift and find it has dropped behind more aggressive institutions.”

On May 17, the bank announced that the third round of searching for a new CEO had ended without success. One candidate had been Maria Paslo-Wisniewska, an experienced banker who had once been the head of Pekao SA, but who had the disadvantage of being an MP from the opposition Civic Platform party. The fourth round is expected to take at least a month.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter