At a discount grocery store in Warsaw, customers whip through the checkout, paying wirelessly by holding their credit cards above the terminal. Above the cash register is a poster proclaiming: “Now you can pay with your mobile phone!”
Such technologies are still filtering into many western markets, but they have boomed in Poland. Contactless card payments are now the norm.
Internet banking has been popular in Poland for years. By 2012, more than half of Poles were banking online, compared to a European average of less than 40 per cent. The country is sixth in Europe when it comes to internet banking penetration, according to Poland’s treasury ministry, higher than Germany, Denmark and Ireland.
The sector’s quick adoption of technology contrasts with its reluctance to use more modern financial instruments. Poland’s banks have long held a conservative risk profile, a strategy that has served them well.
They were not caught out by the credit default swaps that brought western banks to their knees, and not a single Polish bank required a state bailout during the global financial crisis.
In stress tests conducted by the Polish Financial Supervisory Authority last year, all Polish banks but two passed – and they have since increased their capital positions to satisfactory levels, the regulator says.
The sector has remained strongly profitable. Return on equity reached 10 per cent in 2013, second in the region only to the Czech Republic, according to Deloitte, a consultancy.
The National Bank of Poland reports that for the first nine months of 2014, the sector’s total profits came to 13bn zlotys (€3.1bn) – 10 per cent ahead of the figure for the same period last year and on track to beat 15.6bn zlotys by year-end, which would be the highest level since 2011.
The rosy outlook belies some underlying weaknesses, though. Non-performing loans hit 8.5 per cent in 2013 – higher than Poland’s regional peers.
Foreign currency-denominated mortgages, especially in Swiss francs, still make up nearly half of Polish banks’ mortgage portfolios, exposing them to currency fluctuations. Analysts are relatively unconcerned about this, pointing out that the share of foreign currency loans has dropped sharply in recent years, a trend that is expected to continue.
Still, a big change in currency rates could have far-reaching effects, says Witold Orlowski, a professor of economics and a former government economic adviser.
What worries economists more is a maturity mismatch between liabilities and assets. Popular deposits usually have a six-month maturity, while mortgage loans last 20-30 years. “There is a need to increase long-term financing,” says Marcin Piatkowski, senior economist for the World Bank in Poland.
Mortgage-backed bonds could be one answer, but these can be issued only by specialised mortgage banks, of which Poland has only two. Regulatory and tax issues have limited the market to 2.6bn zlotys (€620m). But rules expected to come into effect next year should remove the main barriers, he says.
Poles’ propensity for modern banking methods could also be a challenge. Using mobile apps to buy products often requires customers to open a digital debit account through a mobile service provider, not a bank. This may eat into the deposits banks attract, while mobile service providers can begin diversifying into financial services. “The fight is on over who will become the client’s first contact for financial services,” says Krzysztof Dresler, an independent banking analyst at adviser ICRA.
Banks’ margins on mortgages are being squeezed as well. Poland’s Monetary Policy Council has cut interest rates nine times since November 2012, to a historic low of 2 per cent last month.
To make up for the loss, banks are increasing consumer loans, which have become more attractive because of recently relaxed regulations. According to Deloitte, consumer loans have been rising since mid-2013 and are expected to grow 6.5 per cent this year.
With the economy expected to maintain healthy growth of about 3 per cent over the next few years, and banks’ profitability and capital positions strengthening, this looks a relatively safe move. But the question is whether the increased risk appetite could backfire on the banks.
“With the good mood returning to the market, if there is a big demand for credit, that could be the problem,” says Mr Orlowski. “We don’t want excessive optimism. I’m more afraid of the good times than the bad times.”
Get alerts on Poland when a new story is published