Page 12 - Poland Outlook 2022

4.2 Banks

Polish banks are in for a very favourable 2022, macro data suggest. Three
major drivers of the banking sector’s result will be the continuation of dynamic
GDP growth supported by household consumption – itself driven by growing
wages – the low unemployment rate, and the increased interest rates.

The rates, which stood at 2.25% in January with a perspective of reaching
3%-4% throughout 2022, will boost banks’ net interest income. Net fees and
commissions – which the banks inflated when the interest rates were low – are
unlikely to go down and will add to banks’ earnings, too.

On the cost side, inflation appears likely to increase banks’ expenditure.
Lenders will also have to pay more to the deposit guarantee fund BFG. But,
say analysts, those cost risks are not going to outweigh the rise in earnings.

Also the increased interest rates are unlikely to worsen the quality of banks’
loan portfolios, the outlook becoming more risky with ever new hikes delivered
by the central bank, which is all but certain.

Some risks also lurk in the growing cost of living with inflation and more
expensive electricity and gas bills, which will also drive up prices of everyday
goods.

“Overall, it's going to be a pretty good year. It has been a long time since there
was such a confluence of favourable factors: strong economic growth and
increased interest rates. At the same time, the quality of assets is
incomparably better than a few years ago. The scoring methods and risk
models are completely different today. If we put aside the issue of [Swiss] franc
[mortgages], the ROE should be in double-digits. We have not seen such a
return on capital since 2015,” Polish newspaper Puls Biznesu wrote.

On the Swiss franc housing loans issue, however, banks still do run
considerable risks. More and more borrowers sue banks for abusive clauses in
mortgage deals and courts tend to side with them, pushing banks to create
more reserves, which in turn impacts profitability. Poland still does not have a
systemic solution to the problem, which began festering after the Swiss central
bank unpegged the franc from the euro, leading to a major PLN/CHF
weakening. With that, repayments rose dramatically while properties’
loan-to-value ratios worsened.

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