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Polish banks benefit from rising rates

A rapid economic recovery has given a boost to Poland’s banks, but a slowdown from high inflation is on the way, driving up the cost of risk for banks. Burhan Khadbai reports.
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The Polish economy recovered swiftly in 2021, with growth of 5.9% following a contraction of 2.2% in 2020. The economy of Poland contracted less and rebounded stronger than expected, showing the effectiveness of the government’s actions during the Covid-19 pandemic.

Recovery was also seen in Polish banks, with the profitability of its lenders rising as the central bank began hiking rates. Rising rates have lifted the revenues of Poland’s banks quickly, due to loan rates being benchmarked to forward-looking interbank interest rates, such as Wibor.

PKO Bank Polski is this year’s best-performing bank from the country’s four largest domestic lenders, with an overall score of 5.46. Contributing to its position is its strength in profitability, asset quality and return on risk, where it is ranked first. PKO Bank Polski is also Poland’s largest bank by Tier 1 capital. It saw record-breaking profits in 2021 at 4.9bn zlotys ($1.09bn), 20% higher than before the pandemic. Meanwhile, the bank’s assets grew by 10.9% in 2021 to 418bn zlotys.

Bank Gospodarstwa Krajowego is in second place in terms of performance, with a score of 5.12. The bank comes in first for growth, operational efficiency and liquidity. Bank Pekao is in third place with a score of 4.7, taking first spot for soundness and leverage and second for asset quality. Alior Bank rounds off the top-four ranking with a score of 4.69.

Poland’s top four best-performing ranking mirrors its Tier 1 capital ranking, with all four banks assuming the same places. However, all banks have seen their Tier 1 capital fall year-on-year and, as a result, have seen their positions in the overall Top 1000 ranking drop. PKO Bank Polski has fallen from 170th to 179th, Bank Gospodarstwa Krajowego from 242nd to 255th, Bank Pekao from 245th to 266th, and Alior tumbled from 586th to 643rd.

Poland’s economic growth in 2022 will be slowed down by the impact of energy price rises and inflation, which will drive up the cost of risk for Polish banks. The Polish banking sector also has a large stock of non-performing loans and litigation risk from the Swiss franc-denominated legacy mortgages of several systemically important banks. However, rising rates will continue to provide a boost to Poland’s banks, helping to increase revenues and profits.

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