Poland’s banking system has so far been little affected by the credit crisis sweeping through more developed economies, but local bankers fret that eastern Europe’s largest economy will not escape unscathed.
“There is no basis for any kind of serious fear, but there is reason for caution,” says Krzysztof Pietraszkiewicz, head of the Polish banking association.
The worry is that Poland’s banks have been too aggressive in offering mortgages to homeowners – loans in excess of the value of the property and too many brokers working on commission selling products customers cannot really afford – warned Leszek Pawlowicz, an economist from the Gdansk banking academy, during a recent Warsaw conference on the credit crunch.
On the face of it, Poland has more differences than similarities to the highly leveraged US market with its sub-prime borrowers and mortgage-based investment instruments.
Unlike the US, the Polish economy continues to grow strongly. Last year it expanded by 6.5 per cent, and this year it is expected to grow by 5.5 per cent.
“What we are going through is very different from what is happening in more developed markets,” says Stanislaw Kluza, head of the Financial Supervision Authority, a newly-created unified financial markets regulator.
Unlike their US counterparts, Polish banks have stuck closely to the traditional business of taking deposits and granting loans, with few of them investing in exotic financial instruments. Although two-thirds of Poland’s banks are foreign-owned, not many of the parent banks, with the exception of Citi, have been burned by sub-prime assets.
“The impact of the sub-prime crisis in Poland is certainly not direct,” says Robert Maciejko, partner and managing director for central and eastern Europe for Oliver Wyman. “It would be if Polish banks had invested in mortgage-backed securities, which they haven’t.”
While Poland is not directly affected by the sub-prime crisis, it does have its own mortgage issues. The Polish mortgage market is newer and much smaller than in the US, with a mortgage loan to gross domestic product ratio of about 10 per cent, a fraction of the level in the US and the UK.
There are also no sub-prime borrowers in Poland. Most borrowers are upper income urban professionals and only about 4 per cent of outstanding loans are classified as problems. However, a rise in lending, fueled by prices that have more than doubled in most Polish cities over the last two years, may be grinding to a halt.
Polish banks last year issued 60bn zlotys ($26.4bn) in mortgages, 46 per cent more than in 2006, according to the Polish Banking Association. In 2008, it expects mortgages to rise to about 68bn zlotys. But the market has shown signs of stagnation in recent months and many cities have reported slight price falls and a sharp drop in transactions.
The banking system has also shown signs of strain. Last summer the value of loans overtook deposits for the first time and some lenders have begun offering 40 or 50-year mortgages as a way of attracting clients.
Mr Pietraszkiewicz says that Poland’s mortgage market has more than doubled in three years, and that some banks are “elastic” in their lending criteria.
Poland’s banks are aware of the stresses and have begun to react. As well as the central bank’s call for stricter procedures, banks have launched aggressive campaigns to pull in more deposits, which should reduce the need to access international markets. In January, banks gained 14bn zlotys in new deposits as clients pulled money from investment funds after falls on the stock exchange.
The US crisis has had its biggest impact on the stock market, which has dropped by about 25 per cent since last summer. Further impact on Poland is more likely to come from a general slowdown in western Europe – only about 2 per cent of Poland’s exports go to the US.
The general outlook for Poland’s banks is positive. The economy is growing, wages are rising at double-digit rates and the banking market is expected to expand. Only 30 per cent of Poles have credit cards, and 30 per cent of people have no bank account at all.
