Polish banks are experiencing a surge in lending potential, fueled by a substantial surplus of deposits – exceeding 800 billion złoty – and a desire to deploy those funds productively, according to Marcin Gadomski, Vice President of Bank Pekao, speaking at a conference on risk and capital management organized by the European Financial Congress and Deloitte.
The National Bank of Poland (NBP) has reported in its quarterly surveys that banks are easing their credit policies. However, the extent of this easing remains individually determined by each institution, reflecting its own risk appetite, Gadomski noted. The full consequences of this trend will only become apparent in the coming years, as credit issues typically emerge over time.
Bożena Graczyk, Vice President of ING Bank Śląski, cautioned that the current boom in lending carries potential future risks. “We spot the possibility of future risk costs associated with the current credit boom. This is a major challenge and a significant dilemma – the compromise we are making in the form of low margins may be too great,” she stated.
The timing for accelerated lending is particularly favorable, as credit risk costs within banks are currently at historic lows. PKO BP recently reported reducing these costs to 30 basis points from 35 basis points the previous year, potentially a record for an institution of its size.
Data from the Polish Financial Supervision Authority (KNF) indicates that non-performing loans (NPLs), categorized as “basket 3” loans – those overdue or with a low probability of full repayment – constitute only 4.6 percent of the entire sector’s credit portfolio. This marks the first time this figure has fallen below the 5 percent threshold considered a safety margin by the European Banking Authority.
For years, the Polish banking sector has lagged behind its European counterparts in terms of NPL ratios. The current favorable macroeconomic environment is contributing to the improved performance.
Economic growth accelerated at the end of last year, inflation has decreased, unemployment remains relatively stable, and wages continue to rise, albeit at a slower pace. These factors collectively support the quality of the credit portfolio, allowing banks to capitalize on the current conditions.
Banks have also focused on improving their credit risk assessment processes, employing increasingly sophisticated methods enabled by technology. PKO BP has highlighted its use of machine learning and artificial intelligence in analyzing risk, claiming that analyzing vast datasets in the cloud, combined with machine learning tools, provides a comprehensive view of both financial data and a company’s position within the national economy. The bank reported that these models facilitated the approval of 52.7 billion złoty in loans last year, exceeding the amount that would have been approved through traditional risk analysis by 1.5 billion złoty, and resulting in credit being extended to 41,000 additional customers.
Marek Lusztyn, Vice President of mBank, emphasized the importance of integrating different types of risk assessment. “Banks should focus on combining what is happening in different types of risk and not looking at them in isolation,” he said at the conference.
The recent cycle of interest rate cuts, which began in May of last year, presents a double-edged sword for banks. While lower rates can improve borrowers’ ability to repay and stimulate demand for new loans, they also compress bank margins and intensify competition.
Major Polish banks have announced their strategies, all centered around growth. One bank president wryly observed that the combined strategies suggest an ambition to build a second Polish market.
Bożena Graczyk noted that margins on loans are already falling. “In their strategies, Polish banks have indicated that their most important goal is to increase market share. Margins are starting to fall sharply. In the corporate segment, we are already seeing margins that are unacceptable,” she stated.
The only way to counter the compression of margins caused by falling interest rates and market competition is to increase lending activity, and to compete for a larger market share. Wojciech Kembłowski, Vice President of BNP Paribas Bank Polska, suggested that banks will compete on both price and risk appetite, but cautioned that risk costs exceeding 100 basis points would represent a critical barrier. He expressed short-term optimism but voiced concerns about the medium and long term.
Two factors are expected to temper banks’ risk appetite. The first is the ongoing conflict in the Middle East and its potential impact on macroeconomic stability through energy prices and supply chain disruptions. Paulina Strugała, a board member of VeloBank, highlighted the need to understand the impact of rising oil prices – approaching $120 per barrel – and increasing yields on 10-year Polish bonds – nearing 6 percent – as geopolitical risks.
The second factor concerns Poland’s long-term economic prospects. A recent World Bank report emphasizes that the Polish industrial sector still relies heavily on imitation and that research and development investment is primarily driven by foreign corporations located in Poland, with limited benefits for the domestic economy. Wojciech Kembłowski questioned whether the Polish economy will remain competitive, warning that a lack of competitiveness could lead to problems within the credit portfolio.
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