An international financial centre is seen as the hallmark of a serious country – which is why emerging economies from South Africa and Brazil to Russia, Turkey and Poland are all trying to build up their financial muscle.
Poland has been more successful than many central European rivals in creating a sector that has wider than national significance. In fact, Warsaw has left other central and eastern European (CEE) capitals such as Budapest and Prague far behind and, by some metrics, has passed Vienna.
A significant factor in Poland’s growing financial clout is its above-average growth.
As the finance ministry never tires of pointing out, Poland has shown the most resilience of any EU country in the crisis.
Between 2008 and 2011 the economy grew by 15.7 per cent, while the average for the EU was a 0.5 per cent contraction. The European Commission estimates the economy will grow by 2.7 per cent this year.
Poland’s biggest international financial success is the Warsaw Stock Exchange, which now accounts for more than half of central Europe’s share trading volume.
The exchange plays a big part in the country’s financial system, and the option to go into the market to obtain capital enters into the calculations of companies to a much larger degree than in other CEE countries, where the German-style system of bank-led capitalism prevails.
The Warsaw bourse is also a conduit for Poland’s international financial ambitions, as increasing numbers of regional businesses choose to list there. The exchange even has an index of Ukrainian companies.
Ludwik Sobolewski, the chief executive, says: “I would like us to be seen as one of the big exchanges, along with Moscow, Istanbul or Oslo.”
Its eagerness to attract listings – it regularly leads the European rankings for initial public offerings – have caused some problems, and the authorities are promising to focus more on liquidity and quality.
An ecosystem of traders, analysts, accounting and law firms and investment banks – who are increasingly hiring local specialists educated in Polish universities – has grown up around the WSE. Rodrigo Carvalho, the Poland director for Portugal’s Espirito Santo Investment Bank, says: “You have all the global players and a decent number of regional [ones], such as ING, Deutsche Bank and Erste Group on the scene in Warsaw.”
He adds that his office has only two non-Poles and 53 locals, who tend to earn higher salaries than financial professionals in Lisbon or Madrid.
Warsaw has also become a regional hub for private equity. The largest CEE funds tend to have their headquarters in the Polish capital, although they do also have representative offices in cities such as Prague, Budapest and Bucharest.
“Poland is very attractive,” says Robert Manz, a managing partner of Enterprise Investors, one of the biggest and oldest private equity firms in the region. “One needs to approach other countries in the region more selectively. It’s the most liquid hub. If you want to do an IPO in the region, you have to look at Warsaw.”
However, deal size is much smaller than in western Europe, a reflection that the companies that have grown up in the region in the two decades since the end of communism have not yet reached the scale of their rivals from wealthier countries.
That keeps big international and pan-European groups on the sidelines, dipping into Poland when the rare huge deal comes up, but otherwise leaving the sector to local firms.
Last year, more than half of private equity spending in the region was on Polish assets and, when firms turn to investors to raise funds, it is the country’s economic strength that makes their pitches attractive.
While private equity capital roams the region looking for deals, the rest of the financial sector based in Warsaw is more limited in its reach.
About two-thirds of the country’s banks are owned by foreign groups, and their Polish subsidiaries focus exclusively on the Polish market – which means headquarters and the bulk of pan-European analysts and decision makers are based in cities such as Milan, Frankfurt and Vienna, not Warsaw.
The largest local bank, the state-controlled PKO BP, hoped to become a regional business but expansion plans fizzled.
Polish banks are more solid than many in the eurozone. Tier one capital, a metric of a bank’s financial strength, is 12 per cent, well above international requirements, and borrowers are doing a better job of repaying their debts than most of their peers elsewhere in the region.
But banks are increasingly reluctant to lend, a policy partially driven by decisions taken in non-Polish headquarters, as foreign institutions build up their capital.
Bankers’ caution has an impact on real estate developers and on Polish borrowers who find it more and more difficult to get a mortgage. “Both bankers and borrowers are much more aware of risk,” says Andrzej Jakubiak, head of the country’s financial regulator.
Poland also lacks some of the institutions and investors needed for a robust financial sector. One significant gap is the reluctance of local pension funds to get involved in areas such as private equity, preferring instead to focus their attention on government bonds and on equities traded on the exchange.
“There are a lot of countries that want to have international financial centres, but you need two things for that to happen; a huge stock of savings and high levels of trade,” says Mert Yildiz, emerging market analyst with Renaissance Capital, a Russian investment bank.
Although Warsaw has many more amenities than it had two decades ago – as the growth of decent restaurants and hotels attests – it still lags behind Vienna as a city with international draw.
As a result, the Austrian capital is more likely to serve as a base for Russian millionaires and Balkan oligarchs, who also do their financial business there.
While the Vienna stock exchange has been bypassed by the WSE, the city has remained the regional headquarters of a large banking sector that plays a leading role across CEE.
As a result Vienna is much higher than Warsaw in the annual ranking of international financial centres by Z/Yen Group, a think-tank. In the 2011 listing, Vienna was 34th while Warsaw came 54th of 77 financial centres.
This is not to say Poland’s capital city does not have potential. Two decades ago, the thought that Warsaw would be home to the region’s largest stock exchange and its skyline would be punctuated with gleaming office towers filled with financial professionals would have seemed laughable.
A large population, entrepreneurial spirit and faster than average economic growth all lend increasing weight to the financial sector.
“Warsaw is becoming a hinge between east and west – between western capital and eastern companies,” says Mikolaj Budzanowski, the treasury minister.