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Pekao, PKO merger seen as possible as Polish bank consolidation heats up


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Pekao, PKO merger seen as possible as Polish bank consolidation heats up

A merger between Bank Pekao SA and PKO Bank Polski SA could be on the cards in the future, as consolidation in the fragmented Polish banking market gathers pace and the government seeks to strengthen the country's position in the European banking sector, according to analysts.

Reports in local newspapers Rzeczpospolita and Parkiet on Dec. 8 suggested that Poland's two largest lenders were discussing a tie-up that could take place in 2018, with the combined bank to have almost 15 million clients and about 461 billion zlotys in assets.

Both banks denied the reports, but analysts said there was a strong chance the two firms, both of which are partly state-owned, would merge in the future as it would result in cost savings and fuel further tie-ups.

"The banking sector is still consolidating, so probably this topic will return to the market at some point of time in the future, maybe not in 2018 but in 2019," said Lukasz Janczak, analyst at Ipopema Securities.

He said there would be some positives such as cost synergies, despite the fact that both banks are quite cost-efficient.

"You can see higher pricing power and lower competition going forward," he said.


Consolidation in the Polish banking market has been heating up. Deutsche Bank AG is reportedly selling its Polish bank, while Alior Bank SA acquired Bank BPH SA in 2016.

Poland's government has also been leading a "repolonization" push to return more of the banking sector to local investors, after privatizations in the 1990s led to it being majority-owned by foreign lenders. Through state-controlled insurer PZU SA and the state-owned Polish Development Fund Polski Fundusz Rozwoju, it acquired nearly 33% in Pekao earlier in 2017. The government also holds 29.4% of PKO. PZU acquired Alior in 2015, and there have been expectations that PZU might use it as a vehicle to buy other lenders.

"Consolidation in the banking sector makes sense due to economies of scale," analysts at Erste Securities said in a note.

"For [the] corporate segment, the combined bank would be more 'corporate' than PKO alone and as a bigger entity would gain access to bigger transactions," the analysts said. The merged entity would also "stand a chance to be a first-choice bank for Polish retail customers as there would be no confusion of which bank is 'more Polish'," they said.

PKO, which is among the Polish lenders with the highest exposure to foreign-exchange mortgages, has had to adjust its dividend policy following recommendations from the Polish regulator on concerns of the risk to the economy because of potential fluctuations in FX loans.

"PKO's FX-mortgage exposure would be diluted and therefore would not be a big problem in terms of meeting regulatory capital requirements regarding potential dividend policy for future years," Erste analysts said.

Testing the waters

The reports come as Poland's finance minister, Mateusz Morawiecki, who has backed the push for Polish ownership of the country's banks, is set to replace Prime Minister Beata Szydlo, who resigned on Dec. 7. Janczak said the bank could be testing the waters to see how the market would react to a potential merger.

"There's nothing public but talks are probably going on," he said.

Rzeczpospolita cited the Polish Development Fund's head, Pawel Borys, as saying a merger of the two financial institutions would be a good solution if Poland wants to play an important role on the EU's banking market in the next five to 10 years, and Erste analysts said the merger "would create an entity that would have regional competences."

But some analysts were skeptical that a larger Polish bank could have any influence on the European banking sector due to its domestic focus.

"The experience of Polish banks in investing aboard is rather limited," said Marcin Materna, head of research at brokerage Millennium. "I don't think creating a larger bank will increase the importance of Poland in the European banking environment because if you are not abroad ... you just don't count as an important player."

As of Dec. 7, US$1 was equivalent to 3.57 Polish zlotys.