Poland and the Eurozone: Currency, Trade and the Capital Markets

Maciej Stańczuk, CEO, PBP Bank „Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Banking sector will change in the aftermath of the crisis -

Banking system is naturally playing a crucial role during the debt crisis in Europe, because it transmits financial shocks from one member state to the others, from the Eurozone to the other UE countries, from Europe to the rest of the World.

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It is difficult to discuss the crisis and its consequences without paying proper attention to the banking sector, and, at the same time, it is not possible to discuss the future of the banking sector without talking about the crisis.

„Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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How the debt crisis influences the Polish banking sector There are two important channels through which the crisis and its consequences will influence the Polish banking sector:

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First, it prompts Western Banks to take decisions concerning their activity in the Central Europe, including Poland;

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Second, new regulations (Basel III) will directly change the environment for banking in Poland. These new regulations are adopted at the EU level and can be considered as a part of a new institutional framework in Europe.

„Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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Activity of Western Banks in Poland I. In the short run, we usually pose a question: to what extent deleveraging process affects the Polish economy? Fortunately, and contrary to 2008, so far there are no clear signs that deleveraging in Western Europe is severely undermining availability

of credit in Poland. Companies that want to invest can find financing and it is investment demand, not supply of credit, that is limiting the investment activity in the Polish private sector.

In the long run we should focus on changes in the ownership structure of banks in Poland.

„Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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Activity of Western Banks in Poland II. Changes in the ownership structure are widely debated, because many of the biggest banks in Poland have been sold or are believed to be on sale. One can mention acquisition of BZWBK and Kredyt Bank by Santander Bank, acquisition of

Polbank by Raiffeisen Bank, rumors about possible acquisition of Millennium.

Although the effects of these changes are not very visible to the ordinary people, they affect the structure of the banking sector.

„Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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„Reconquering” Polish banks – good idea?

One of the most fierce debates over changes in the ownership structure has been related to a problem of nationality of investors in the banking sector. Some economists, together with senior figures from the central bank and financial

supervision committee, have argued recently that some banks in Poland could be “reconquered” from the hands of foreign investors and sold to Polish institutions.

Would it make sense?

It is true that credit decisions are very often being taken abroad, what makes allocation of domestic credit suboptimal. Therefore, theoretically it is a tempting idea to engage domestic capital in the Polish banking sector. However, there are some problems.

„Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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„Reconquering” Polish banks - doubts First, it is low rate of domestic savings that matters most to the stability of the Polish financial sector. Poland is highly dependent on foreign capital (45% of government bonds are owned by foreign institutions, current account deficit exceeds 4% of GDP,

external debt exceeds 60% of GDP), so shifts in the ownership of banks will not change the root cause of dependency on foreign capital.

Second, besides state companies, like PKOBP or PZU, there aren’t any strong financial institutions in Poland that could afford to buy any of the largest banks.

Some people are advocating selling banks to domestic portfolio investors, but it is easy to say and difficult to do.

„Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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Regulations’ impact: capital There are three important points: -

capital requirements,

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liquidity requirements,

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macro-prudential policy.

Capital requirements. Polish banks are well capitalized and should have no

problems meeting requirements of Basel lIII and CRD IV. There has been no major credit boom in Poland, so there is no immediate threat of insolvency crisis in the sector. However, if we look at asset weights that are used to measure capital adequacy ratio, we find out that giving credit to companies is punished with higher

weight. It might have negative impact on availability of credit to companies.

„Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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Regulations’ impact: liquidity Liquidity requirements. The short term liquidity requirement (LCR – liquidity coverage ratio), which constraints banks to keep enough liquid assets to cover one month financing needs, will negatively affect profitability of banks, because it will

arrest some assets that could otherwise be invested with higher returns. However, this requirement will not have any profound implications for the Polish economy.

Negative consequences can be expected from another liquidity requirement – the one that obliges banks to finance long term assets with long term liabilities (NFSR – Net Funding Stability Ratio). In Poland we do not have a developed market for long term debt instruments, therefore it will be extremely difficult for banks to obtain proper financing. This is a challenge that should push the Financial Supervision Committee, central bank and the government to work hard on domestic regulations that could help to develop such a market. „Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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Regulations’ impact: macro-prudential policy Macro-prudential policy. This kind of policy is new to most of the countries. It aims at limiting credit activity during good times and increasing credit activity during bad times by changing capital requirements. So in theory it should be countercyclical

policy.

There is a risk, however, that if not used properly the countercyclical policy could strengthen negative financial shocks. How? If you increase capital requirement at the wrong moment during a credit boom – just before credit bust – you only make things worse. Research shows it is possible, so extreme cautious is needed.

Fortunately, according to the most recent project of CRD IV, macro-prudential policy will be conducted at the country level, so the Polish Financial Supervision Committee will decide on every measure. „Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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Maciej Stańczuk CEO Tel: +48 22 653 06 04 Fax:+48 22 653 05 01 www.pbp-bank.pl E-mail: maciej.stanczuk@pbp-bank.pl Polski Bank Przedsiębiorczości S.A. ul. Domaniewska 39A, Horizon Plaza PL-02-672 Warsaw

„Poland and the Eurozone: currency, trade and capital markets”, Warsaw, 24. May 2012

Polski Bank Przedsiębiorczości S.A.

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