Poland’s banking sector is “relatively sound”, with adequate levels of liquidity and capitalisation to offset weakening economic growth, according to Fitch Ratings.
However, bank profitability has come under pressure, the rating agency says, despite the rise in interest rates, driven to a large extent by the costs related to a borrower repayment holiday, which was booked in the third quarter of 2022.
The rapid rise in interest rates has also contributed to a sharp decline in credit demand among households, with mortgage lending showing signs of contracting (the third quarter of 2022 saw mortgage lending contract 70% year on year).
Against this mixed outlook, it is all change at the top of the best-performing bank table in Poland, with Bank Gospodarstwa Krajowego (BGK) overtaking PKO Bank Polski, Poland’s largest bank, as the overall best performer. PKO Bank Polski has dropped down to last position among the largest four domestically owned Polish banks by Tier 1.
In addition to finishing first overall, BGK has also recorded table-topping results for profitability, growth, operational efficiency, return on risk, liquidity, soundness and leverage. BGK’s liquidity comes mainly from the public sector and corporate deposits. The bank has a high probability of support from the Polish state because it plays a key policy role in the disbursement of government funds and aid. Its pre-tax profits (PTP) increased by 125.6% in 2022.
Alior Bank, the eighth-largest bank in the country when foreign-owned subsidiaries are included, has inched up from fourth to second place in the overall best-performing table, with its highest placements in profitability, return on risk and leverage.
Despite posting PTP in 2022 of around $1.4bn, a credit holiday on mortgage repayments designed to help borrowers in the face of higher interest rates weighed on PKO Bank Polski’s third quarter profitability, and its PTP contracted by 26.9%.
DBRS Morningstar also predicts further costs to the Polish banking system stemming from the legal risk associated with foreign exchange mortgages. On June 15, the European Court of Justice found in favour of Polish borrowers with Swiss franc-denominated mortgages, which means they will not have to pay interest on foreign mortgages.
The rating agency said Polish banks had increased reserves, estimated to be around 40% of the remaining Swiss franc-denominated mortgage portfolio, from 19% in June 2021. The banking system’s provisions against this risk, it added, including high capitalisation (15.2% Tier 1 capital ratio as at September 2022), would help mitigate systemic risk.
