Shares in Polish lenders fell at the onset of the coronavirus pandemic in March and three interest rate cuts in as many months have stifled their recovery, leaving them largely lagging the EURO STOXX index ahead of second-quarter earnings.

The second-quarter net profit of the nine listed Polish banks is expected to slump 55% year over year, news agency PAP said. Lenders in Poland face several challenges including legal disputes relating to Swiss franc-indexed mortgages, higher loan losses stemming from the COVID-19 crisis, the economic health of the country and how many borrowers restore payments after loan holidays end.

ING Bank Śląski SA and Commerzbank AG's Polish unit mBank SA led a stock price recovery in June, with ING Groep NV's business in Poland continuing to outperform the pack since.

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Banks such as Santander Bank Polska SA and mBank face higher provisions due to a larger share of Swiss franc-indexed mortgage loans in their portfolios.

Bank Millennium SA, BNP Paribas Bank Polska SA, Getin Noble Bank SA, mBank and ING Bank Śląski have warned that their 2020 net interest income will take a hit following the central bank rate cuts in March, April and May.

The Polish Bank Association estimates a roughly 85% year-over-year decline in full-year earnings due to rate cuts and higher provisions stemming from the coronavirus crisis.

PKO Bank Polski SA warned that rate cuts would reduce its full-year 2020 profit by between 850 million złotys and 900 million złotys from 4 billion złotys in 2019, whereas Bank Pekao SA is bracing for a drop in its net profit for the same period of between 650 million złotys and 700 million złotys from 2.17 billion złotys in the prior year.

As of July 22, US$1 was equivalent to 3.81 Polish zlotys.