Polish banks to deliver record dividends in 2024

Polish banks are set to pay their highest dividends in years thanks to robust earnings from 2023, strong capital levels and reduced regulatory pressure.

The country's biggest banks could pay out more than 23 billion zlotys in dividends in the coming months, according to S&P Global Market Intelligence calculations, versus 2.6 billion zlotys in 2023 and roughly 5 billion zlotys in 2022.

"This year [Polish] banks had the tendency to higher dividends than we anticipated, which is linked to good financial results and low lending demand," Michał Sobolewski, senior equity analyst at DM BOŚ, told Market Intelligence.

The dividends Polish lenders pay out this year will be at a record level, according to Tomasz Bursa, banking sector analyst and vice president of Polish investment fund manager OPTI TFI. In addition to reporting strong 2023 results and low credit risk, Polish banks also accumulated capital and built high solvency ratios during the last few years of low payouts, which in turn enabled the Polish Financial Supervision Authority (FSA) to soften conditions for shareholder returns, Bursa said.

The FSA allowed banks to share up to 75% of their 2023 profits with shareholders, depending on the individual situation of each bank. Lenders with Swiss franc mortgages traditionally face additional dividend-related requirements from the regulator.

In the case of several banks, such as Santander Bank Polska SA and ING Groep NV unit ING Bank Slaski SA, the FSA allowed additional payouts from profits retained in previous years.

Banco Santander SA's Polish unit is set to pay the highest dividend among Polish listed lenders in 2024 at almost 67.9 zlotys per share, or 6.9 billion zlotys in total. In addition to a dividend from 2023 profit, the figure also includes a dividend from profits retained in previous years and an interim dividend of 23.25 zlotys per share already paid at the end of 2023.

Poland's second-biggest lender, Bank Polska Kasa Opieki SA (Bank Pekao), plans to pay 19.2 zlotys per share, the highest dividend in its history.

According to PKO Bank Polski SA's top executives, the bank could earmark 3.2 billion zlotys, or 66% of its stand-alone 2023 net profit, for dividends and has yet to decide what to do with 10.8 billion zlotys of undistributed profits from previous years. The bank already paid an interim dividend of 1.6 billion zlotys in January.

Alior Bank SA and BNP Paribas SA unit BNP Paribas Bank Polska SA will pay out their first dividends this year.

– Access dividend details for PKO Bank Polski, Bank Pekao and Santander Bank Polska. – Access Polish banking sector aggregate data. – Access economic and demographic data for Poland.

Prospects on dividends from 2024 earnings also look promising. Polish banks will face less pressure from provisions on franc mortgage loans, and interest rates in Poland are expected to remain high this year, supporting profitability.

Moody's recently changed the outlook for the Polish banking system to stable from negative, pointing to improved business prospects for local lenders. Return-on-equity ratios at Polish banks could be among the highest in central and southeast Europe in the coming years, a recent analysis by Market Intelligence showed.

The FSA also signaled that it could allow banks to pay out up to 100% of 2024 profits and suggested that it will be flexible in its approach to paying dividends from retained earnings. Capital accumulation in the Polish banking sector allows for both credit growth and profit sharing, the regulator's deputy head Marcin Mikołajczyk said in March.

PKO Bank could increase its per-share dividend to the estimated 5.6 zlotys from the 2024 profit and 6 zlotys per share from the 2025 profit, according to Market Intelligence's Dividend Forecasting Team.

BNP Paribas Bank Polska, which wants to earmark 50% of its 2023 net profit for dividend payouts, aims to become a lender that pays dividends on a regular basis and could increase the payout ratio in the future. "We will never be the most aggressive bank in the world in terms of dividend payment, but I think 50% is not our last word," CEO Przemysław Gdański said in March.

Depending on the market situation, Alior Bank is looking to earmark 25% to 50% of profits for dividend payments on a regular basis but wants to focus on growth, its executives said last month. Alior's dividend could reach 6 zlotys in both 2024 and 2025, according to Market Intelligence's Dividend Forecasting Team.

Commerzbank AG unit mBank SA and Banco Comercial Português SA unit Bank Millennium SA have not paid dividends in the last few years, with their profitability negatively impacted by legal risk provisions on their franc mortgage portfolios.

Millennium will not pay out dividends on its 2023 or 2024 results, according to the bank's executives, but would like to return to dividend payouts in the future. mBank's dividend capacity will depend on the level of future provisions on franc mortgage loans, its executives said in February.

While pressure from franc loan provisions is easing, they could still impact the Polish banking sector's future capacity for dividend payouts, according to Bursa. A sudden increase in borrowing needs related to Poland's energy transformation could also pose a risk to dividend levels, Bursa noted.

Future interest rates cuts could affect the sector's profitability and capacity for dividend payouts, Sobolewski noted. Local banks could also face higher capital requirements in the coming years, the analyst said. Poland's Financial Stability Committee recently recommended keeping the countercyclical buffer at 0% in the first quarter of 2024 but noted that it could be gradually increased to 2%.

Polish banks have kept their common equity Tier 1 ratios above requirements in recent years. Some, including BNP Paribas Bank Polska, mBank and Bank Millennium, which has been undergoing a financial recovery program, boosted their capital ratios in 2023.