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Banking Industry Country Risk Assessment: Poland

BICRA Highlights

Key strengths Key risks
The banking sector's good efficiency and profitability, supported by strong digital capabilities. Higher nonperforming loans (NPLs) and credit losses than many European peers.
No particular overvaluation risk in the housing market and sustained low unemployment. Negative government interference repeatedly leading to additional cost burdens on banks, and notable government ownership might distort competition.
Stable funding and sound liquidity profiles based on domestic customer deposit funding and sizable security holdings. Litigation risks from the Swiss franc-denominated legacy mortgages of several systemically important banks, which could still depress their profitability.

S&P Global Ratings expects Poland's economy to rebound in 2024 providing a favorable operating environment for banks.  Despite geopolitical risks from the Russia-Ukraine war and a broader economic slowdown in Europe, we expect Poland's economy to remain resilient. After a temporary slowdown in 2023, with real GDP increasing only 0.2%, we anticipate that growth will pick up over 2024, due to stronger private consumption and the inflow of EU funds. We expect the labor market to remain resilient, with unemployment remaining near historical lows and robust real wage growth, which should also support house prices and prevent material rises in credit losses in the retail business. Given improving economic conditions and the working out of legacy problem loans, we expect NPLs to drop slightly. Positively, the continuing high policy rates support strong operating profitability in 2024 and 2025. However, with likely rate cuts starting in 2025, we expect banking sector profitability to decrease to more normal levels of about 10%.

Legal risks from Swiss franc (CHF)-denominated mortgages should gradually recede.  On June 15, 2023, the European Court of Justice ruled in favor of mortgage holders and declared that the loans were invalid as it contained "unfair terms" and the banks are not allowed to charge clients for the use of capital. This resulted in higher provisioning needs by Polish banks on their legacy mortgage loan portfolios denominated foreign currencies as final court rulings and voluntary settlements became more costly. However, the materially improved operating profits during the year reinforced their ability to absorb these costs. Legal costs will continue to accrue but should gradually recede, with the pace depending on the proportion of clients with already-repaid loans that will target the legal route or settlements.

Risks to the banking sector's competitive dynamics and governance stem from government intervention.  We continue to see high government involvement through state ownership of domestic banks and a track record of government intervention, which we regard as negative for the sector. The new government will need to prove its potentially more orthodox stance towards the sector, which could support investor confidence and ultimately improve domestic banks access' to internal capital markets. Despite the recent prolongation of credit holidays, the introduction of eligibility criteria will make it less costly for banks than the 2022 credit holidays. We expect to see further changes in management boards of state-related banks but no noteworthy strategic changes.

Economic Risk  |  4

Economic resilience: Economic growth is projected to rebound while the war in neighboring Ukraine remains the key risk

After a temporary slowdown in 2023, we expect Poland's economy to rebound, growing about 3% annually over 2024 and 2025. We think a tight labor market with rising real wages and improving consumer confidence will support consumption, and a relatively loose fiscal stance to further drive domestic demand. Our view is also supported by moderating inflation and the European Commission's unblocking of funds, which we expect to underpin investment.

However, on balance, we continue to assess Poland's economic resilience as high risk, considering its relatively low wealth levels in a global context, ongoing economic risks from the Russia-Ukraine War, somewhat sticky core inflation, and the economic slowdown in key trading partners.

Chart 1


Table 1

Poland--Economic resilience
2019 2020 2021 2022 2023 2024f 2025f
Nominal GDP (bil. $) 596 599 681 690 811 914 1,000
GDP per capita ($) 15,697 15,792 18,378 18,698 22,072 24,912 27,328
Real GDP growth (%) 4.4 (2.0) 6.9 5.6 0.2 2.8 3.1
Inflation (CPI) rate (%) 2.1 3.6 5.2 13.2 10.9 5.0 4.4
Monetary policy steering rate (%) 1.5 0.1 1.8 6.8 5.8 5.8 4.5
Net general government debt as % of GDP 40.5 50.1 46.8 43.3 43.8 45.8 47.5
CPI--Consumer Price Index. f--Forecast. Sources: S&P Global Ratings.
Economic imbalances: We expect real house price growth to pick up in 2024

We consider economic imbalances in Poland low risk. With financing conditions tightening over 2022 and 2023, residential house prices fell in real terms. The introduction of government subsidized mortgage lending programs in mid-2023 along with very low new construction, strong employment, high immigration, and real wage growth held up a revival of the nominal price growth over 2023.

With inflation easing and loan demand picking up, we anticipate that real house price growth will turn positive over 2024-2025. Combined with a stable labor market and improving real wage growth, and with the benefit from credit holidays and the Borrower Support Fund, we expect costs of risk in retail mortgages to remain low.

Lending exposure to higher risk commercial real estate sectors is immaterial for Polish banks and we do not consider it a source of systemic risk.

Chart 2


Table 2

Poland--Economic imbalances
2019 2020 2021 2022 2023 2024f 2025f
Annual change in total private sector debt (% of GDP) (4.2) 3.1 (3.1) (9.3) (6.1) 1.7 (1.0)
Annual change in inflation-adjusted housing prices (%) 8.7 6.6 6.4 (3.6) (5.4) 1.4 3.9
Current account balance/GDP (%) (0.2) 2.5 (1.2) (2.4) 1.6 1.3 0.3
Net external debt/GDP (%) 8.8 3.9 (1.1) (3.6) (5.3) (5.6) (5.6)
f--Forecast. Sources: S&P Global Ratings.
Credit risk in the economy: While asset quality metrics are likely to improve further, we expect them to remain structurally weaker than peers'

The debt capacity of Polish households and private sector leverage remain solid. Private sector debt fluctuated near 77%-87% of GDP over the past decade, but strong nominal GDP growth in 2022 and 2023, combined with a sharp reduction in loan demand, pushed the ratio down to about 62% in 2023, which is where we expect it to largely remain.

Considering improving economic conditions, easing inflation, and the prospect of lighter financing conditions and continuing working out of legacy NPLs, we expect this trend to continue, with the NPL ratio projected to decrease to 4.8% by 2025, down from 5.1% in 2023. However, compared with that of European peers, the Polish banking industry's asset quality remains weaker. This reflects comparably higher NPL ratios, longer workout processes, and a less established secondary market for NPLs.

Chart 3


Table 3

Poland--Credit risk in the economy
2019 2020 2021 2022 2023 2024f 2025f
Total private-sector debt (% of GDP) 77.4 80.4 77.3 68 61.9 63.6 62.6
GDP per capita ($) 15,697 15,792 18,378 18,698 22,072 24,912 27,328
Household debt as % of GDP 34.4 34.6 32.2 26.6 23.7 22.6 21.7
Corporate debt as % of GDP 42.9 45.8 45.1 41.4 38.2 41 40.9
Foreign currency lending as a % of total domestic loans 19.3 19.5 17.7 19.2 17.4 N/A N/A
Nonperforming assets (% of systemwide loans) 6.1 6.5 5.4 5.2 5.1 4.9 4.8
Loan loss reserves (% of total loans) 3.5 3.8 3.2 3.1 3.1 3.9 3.5
f--Forecast. N/A--Not applicable. Source: S&P Global Ratings.

Industry Risk  |  5

Institutional framework: Banking supervision standards are largely in line with European peers', but risks from government intervention remains

In our view, the Polish Financial Supervisory Authority (KNF) applies international standards in banking regulation and supervision that are generally aligned with EU peers. While Poland is not in the eurozone and banks are not part of the Single Supervisory Mechanism, we consider the overall quality of regulation and supervision, and the regulatory track record, as still broadly in line. For example, we think that the KNF's recommendations have helped reduce loan-to-value ratios and risks for all mortgages, and we see mortgage lending standards as conservative in Poland. The resolution authority is effectively acting on struggling banks, like resolving Getin Noble in 2022 without any major impact on financial stability.

Government intervention has increased the sector's cost base over the last years. Among the most impactful measures: the introduction of general credit holidays in 2022, mandatory contributions to the borrower support fund, and a relatively high bank asset tax (0.44% based on banks' adjusted annual assets) since 2016. The asset tax increases banks' incentive to hold a high share of Polish government bonds in their portfolio, since these are tax-exempt; this increases the banks' sensitivity to sovereign risks.

These government interventions reflect a structural weakness of the Polish banking sector since the interests of different stakeholders are not always well-balanced. The political climate remains contentious, as highlighted by recent developments, including the motion to bring the Central Bank governor in front of the State Tribunal. Taken together, this influences investors' perception of Poland's financial market and weighs on our view of the institutional framework.

Competitive dynamics: High ownership of the state in domestic banking sector

We view Polish banks as having an adequate risk appetite in their traditional activities in retail and corporate banking but see risks from competitive dynamics overall as high due to state involvement in several large banks.

High interest rates continue to support very strong net interest margins and operating profitability increasing banks capacity to absorb any losses. However, we think this cyclical tailwind will gradually decrease, leading to return on equity that stabilizes at a higher level than from 2022 and before.

At the same time, we see a risk of market distortions from high government ownership. Concretely, the government maintains its stakes in Poland's two largest banks, PKO BP (29.4%) and Bank Pekao (indirectly, 32.8%), as well as the smaller Alior Bank (indirectly, 31.9%). Overall, this represents a materially stronger government ownership of domestic banks than in peer countries.

We consider the risk of tech disruption to Polish banks as low because the banks themselves provide advanced digital offerings and we expect digital banking products to become even more prevalent, benefiting the sector's efficiency (see "Tech Disruption In Retail Banking: CEE Banks Are On The Digital Fast Lane," published May 6, 2021, on RatingsDirect).

Table 4

Poland--Competitive dynamics
(%) 2019 2020 2021 2022 2023 2024f 2025f
Return on equity (ROE) of domestic banks 7.7 (0.3) 3.5 6.3 14.4 12.0 11.0
Systemwide return on average assets 0.8 (0.0) 0.3 0.5 1.1 1.0 0.9
Market share of three largest banks 44.0 43.6 44.2 45.0 42.2 N/A N/A
Annual growth rate of domestic assets of resident financial institutions 6.9 17.7 5.2 1.2 4.5 9.4 10.1
f--Forecast. N/A--Not applicable. Sources: S&P Global Ratings.
Systemwide funding: A strong deposit base with limited need of wholesale funding

Our systemwide funding assessment of low risk reflects the Polish banking sector's strong domestic deposit base, which has been spurred by economic growth and higher wages and wealth over the past decade. Most recently, increased savings, especially since the pandemic, have further increased deposits at local banks. Therefore, the country's ratio of domestic loans to S&P Global Ratings-adjusted core customer deposits decreased further to about 76% and we expect it to remain below 80%.

Over the past decade, funding conditions for the domestic banking sector have improved sustainably, including a reduced reliance on external funding. We expect net banking sector external debt to stay below 10% of domestic loans, compared with about 20% a decade ago. Overall, we think this makes banks' funding profiles resilient to shocks.

The ability of banks to place senior nonpreferred bonds to meet requirements on own funds and eligible liabilities underlined access to domestic and international investors, although these placements came at a cost.

Chart 4


Table 5

Poland--Systemwide funding
2019 2020 2021 2022 2023 2024f 2025f
Systemwide domestic loans (% of systemwide domestic core customer deposits) 107.6 95.8 89.8 83.9 76.2 76.3 73.2
Net banking sector external debt (% of systemwide domestic loans) 10.6 11.9 10.2 5.1 0.9 1.2 2.3
Bonds and CP issued domestically by the resident private sector outstanding (% of GDP) 10.7 13.5 15.3 6.1 N/A N/A N/A
CP--Commercial paper. f--Forecast. N/A--Not applicable. Sources: S&P Global Ratings.

Peer BICRA Scores

Table 6

Poland--Peer BICRA scores



Czech Republic




BICRA group 4 5 3 4 5 5
Economic risk 4 5 3 4 5 4
Economic risk trend Stable Stable Negative Stable Stable Stable
Industry risk 5 5 4 4 5 6
Industry risk trend Stable Stable Stable Stable Stable Stable
Government support assessment Uncertain Uncertain Uncertain Uncertain Uncertain Uncertain
Assessment as of April 26, 2024. (Group '1' to '10' represent lowest to highest risk.) Source: S&P Global Ratings.

Government Support: Uncertain

We consider the likelihood of extraordinary government support for banks in Poland uncertain, so we do not include uplift for support in our ratings on systemically important banks. We consider the country's bank resolution framework effective, which could allow us to include uplift for additional loss-absorbing capacity in our ratings on individual systemically important banks.

Table 7

Poland--Largest commercial financial institutions by total assets
Bank Total assets (bil. PLN)

Powszechna Kasa Oszczednosci Bank Polski S.A.

Bank Pekao S.A. 306

Santander Bank Polska S.A.


ING Bank Slaski S.A.


mBank S.A.

BNP Paribas Bank Polska S.A. 161

Bank Millennium S.A.


Alior Bank S.A.


Bank Handlowy w Warszawie S.A.

PLN--Polish zloty. Sources: Company Reports. S&P Global Market Intelligence.

Related Criteria

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Heiko Verhaag, CFA, FRM, Frankfurt + 49 693 399 9215;
Secondary Contact:Nicolas Charnay, Frankfurt +49 69 3399 9218;
Sovereign Analyst:Ludwig Heinz, Frankfurt + 49 693 399 9246;
Research Assistant:Alexander Maichel, Frankfurt

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