Opinion
The case of Polbank Prof. Małgorzata Zaleska Heralds of change
The author is a Member of the Board of the National Bank of Poland, a professor at the Department of Banking of the Warsaw School of Economics, and a Member of the Presidium of the Committee on Financial Science of the Polish Academy of Sciences.
The Greek Eurobank EFG, owner of Polbank, which is a Polish branch of the Greek credit institution, has decided to sell it. Polbank is one of the twenty branches of this credit institution in Poland, and definitely the biggest. The branches in question have already reached about a 5% share in the Polish credit market and about a 3% share in the domestic deposit market. Moreover, the activities of the branches of credit institutions are steadily developing, which, considering the cross-border aspect of their operation, increases the influence of external factors on the domestic banking market. If there were no problems with the Greek economy, the determination to strive for changing the legal basis of Polbank’s activities would be much lower, as would be the efforts to cover it by the Polish supervision and deposit guarantee system. Transforming Polbank into a bank fully under Polish regulations may be considered another example of the impact of the global economic crisis on the structure of the Polish banking sector. Earlier examples of this included the change of ownership in BZ WBK and the merging of GBW with MR Bank.
Planned acquisitions Raiffeisen Bank intends to buy 70% of shares in Polbank. The outcome of this merger will be one of the top ten banks operating in Poland. It is expected to be 6th in the ranking based on assets size. The bank will have a widespread, well-placed, and recognised network of branch offices. It is also important that, after merging, the banks will create an extensive portfolio of products and services. Raiffeisen Bank is specialised in corporate clients (companies) and private banking, while Polbank has catered for retail (mass) clients. This is a case of two important players on the Polish banking market becoming one, featuring well-recognised brands, logos, and images. This
will probably lead to marketing campaigns connected to the merger and its effects, which will be as interesting as the economic and legal changes.
The need to change the law To carry out the merger of Raiffeisen Bank and Polbank, banking law has to be changed to allow the transforming of a credit institution branch into a bank. Such a transformation should not only be possible, but is absolutely necessary when a credit institution branch achieves a significant share of the domestic banking sector, say 2%. This would enable local institutions to supervise the branch and guarantee deposits, rather than the authorities of the country of origin, as is the case now. As in the case in point, Polbank has been supervised by Greece, and its deposits have been guaranteed by the Greek system, which has greatly limited the influence of Polish authorities. This means that changes to Polish banking law should go a step further, i.e. an obligation should be introduced for significant branches of credit institutions to be transformed into banks. At the same time, it must be noted that this issue requires a change in EU regulations, to start with.
Legal requirements and the transformation process An amendment to the Act on Banking Law provides that a credit institution acting as a branch may open a bank in Poland in the form of a jointstock company, by contributing all the capital components of the branch. In practice, this means a change in the legal form involving the formal liquidation of the credit institution branch and the establishment of a new bank, while transferring the entire infrastructure, liabilities (deposits) and receivables (credits). The permission to establish a bank is to be preceded by an obligatory inspection by the Polish Financial Supervision Authority. The permission would be denied if creating a domestic bank could cause serious
loss to the national economy or to the important interests of the country. In this way, national interests are rightly emphasised in the regulations concerning such decisions. A bank created by transforming a branch is to be obliged to maintain the basic safety measure - the solvency ratio - at the level of at least 12% for the first 18 months of activities, which is higher than for the banks already present on the market (at least 8%), but lower than newly-established banks (a minimum of 15%).
A favourable assessment It follows from the above that in creating Polish banking law, past legislators showed too little imagination to anticipate the case of Polbank, and this comes as no surprise, as it is not an easy one. In any case, it is a good development that Polbank will stop being a branch of a Greek credit institution in Poland. Problems experienced by a large credit institution branch are easily communicable and may be caught by healthy domestic banks, while the Polish authorities have little power to react to such situations. An important bank established on the basis of Polbank will in turn come under Polish protective regulations, banking market supervision, and the deposit guarantee system, which will be beneficial both to clients and banking sector safety networks. ::
7-8/2011 :: polish market :: 73