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Title: Slower growth but higher profitability – a mixed outlook for the banking sector in Poland through 2013 ...
Title: Slower growth but higher profitability – a mixed outlook for the banking sector in Poland through 2013
“The growing nominal interest-rate environment will help banks to temporarily increase margins and to boost revenues in 2011, but the stagnating real income of the population due to elevated unemployment rates and the growing cost of living will prevent a significant growth in deposits and loans…Higher interest rates are also likely to negatively affect existing mortgage loans portfolios of banks in a one- to two-year perspective,” explains Marcin Mazurek, Director of Intelace Research, a consulting company specializing in CEE financial-markets research.
ECONOMY AND THE BANKING SECTOR IN POLAND
With its real GDP increasing by 3.8%, Poland ranked among the top three fastest-growing economies in Europe in 2010. Favorable developments in the economy have been reflected also in the solid performance of the banking sector. Bank deposits increased by 9% YoY, driven by both: retail and corporate savings. A similar growth in lending volumes (+9% YoY) was primarily driven by new lending in the household sector, while outstanding loans to corporate clients contracted by 2% YoY.
Slightly increasing market interest rates helped banks to improve margins. The net interest income jumped by 19%, while F&C margin advanced by 10%. On the cost side, banks were able to reduce risk costs (net reserves) by 10% and allowed only a slight (3%) increase in operating costs, including personnel expenses. As a result, the 2010 pre-tax result of banks jumped by 45% YoY to 13.5 billion PLN.
COMPETITION AND THE FUTURE OUTLOOK
The long-expected sector consolidation started to accelerate in 2010. BZ WBK has been acquired by Banco Santander, Polbank EFG has been sold to Raiffeisen Bank, and a few smaller players changed hands. Since most of the buyers in these M&A deals were already present in Poland with other subsidiaries, those transactions will ultimately mean mergers and an increase in concentration. The consolidation process is likely to continue in the near future because a number of foreign banks engaged in Poland (Millennium, BCP, KBC, and ING, among others) might soon be forced to look for additional capital in order to meet stricter Basel III capital requirements; selling their Polish franchises might be an option.
As far as the mid-term performance of the banking sector is concerned, we expect a moderate, single-digit annual growth in key banking volumes through 2013. The increasing interest-rate environment will initially boost interest revenue of banks; however, it is also likely to contribute to higher NPL rates, especially in case of residential mortgages. The persisting elevated unemployment rates and stagnating real income of the population will limit the growth of retail deposits and may also be a major barrier to further lending expansion in the household sector.
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