Finance & economics | Polish banks

Lucky lenders

A healthy economy and modern offerings have boosted Poland’s banks

|SOPOT

JUST as Poland’s economy and foreign-policy clout have grown quietly but significantly, so its banking system has become one of Europe’s little-known star performers. Poland’s young, technophile and internationalised elite have worked out how to make money as bankers to conservative and traditionally borrowing-shy consumers. Fortuitously, the business model they arrived at has kept them away from the assets that fared worst during the financial crisis.

Zbigniew Jagiello, the boss of PKO BP, the country’s biggest bank, gives most of the praise to the wider economy and to sensible public policy. Since his bank is partly state-owned, he is being astute in offering credit to his biggest shareholder. But the state has also benefited from the banks—directly in the form of steady dividends from PKO BP, and indirectly from not having to bail out ailing lenders on the scale of so many other European countries. “Happily, Poland was not the centre of the financial world,” as Mr Jagiello delicately puts it.

Most of the rest of Poland’s banks are owned by foreign parents: Bank Pekao is majority-owned by Italy’s UniCredit; the third-biggest, Bank Zachodni WBK, by Santander of Spain. Foreign ownership was useful in the crisis, as banks provided liquidity to their small Polish subsidiaries. The parents were well advised to help out; in some cases, the Polish bank has been the most profitable bit of the group.

For example in 2013 mBank was one of the few star performers among the operations of Commerzbank, a German group. It was one of the first entrants into mobile banking, winning plaudits for its digital efforts. It announced its first billion-zloty quarter of revenue on July 30th, with net profits of 325m zloty ($107m), despite low interest rates hobbling the entire sector.

Though boring in their investing and lending, Poland’s banks are innovative in service. Because the country built its banking system essentially from scratch, it was never hampered by legacy practices such as paper cheques. Poland is the European leader in contactless payments. Alior, another young bank (and one of the few without a majority foreign partner) has targeted some of Poland’s rural “unbanked” (30% or so of the population do not have a bank account). Alior’s “Kill Bill” campaign promised free and easy payment of utility bills, and signed up many customers for accounts and loans. Idea, a rival, asks potential small-business customers for the passwords to their existing online-banking facilities; after a quick scan of their past transactions it instantly makes a loan offer.

Factors beyond the control of bankers also helped. Poles did not over-extend themselves with mortgages, as many other Europeans had, and so took less of a shock when the crisis hit. One problem was that, like some other central and eastern Europeans, many Poles took out property loans in Swiss francs and saw their payments balloon as the zloty weakened against the franc. But the regulators demanded stricter credit criteria for such loans, limiting the damage the (now-banned) practice did to the economy. A sudden further weakening of the zloty, or sharply higher interest rates in Switzerland, are among the few potentially big risks to the banking system, says Pawel Uszko of SNL Financial, a business-intelligence firm.

But SNL’s underlying numbers show Poland’s banks in good shape. By international standards, the loans extended to customers are backed by plenty of equity, meaning the banks have buffers to weather a medium-sized storm. Their costs are under control. And with a return on equity of 10.9% in 2013, they compare favourably with almost all neighbours, east or west.

This article appeared in the Finance & economics section of the print edition under the headline "Lucky lenders"

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