Analysts prophesize banks' uncertain future
As deposits and interest rates continue to fall, much of the success of Polish banks next year - the economy notwithstanding - hangs on their success in pursuing new revenue streams in the form of investment fund fees, mortgage loans and credit cards, analysts say.
While Fitch Rating's report, published last week, on the country's banking sector lauds the benefits that firms have received from the recent recovery in the Polish economy, the pressure on banks' operating revenues is expected to continue into next year as margins continue to fall. This is partially because of banks' "new focus on lower risk retail lending, lower domestic interest rates and strong competition for deposits," the report states.
Nevertheless, banks must continue to target new revenue streams.
Grzegorz Zawada, an analyst at Erste Securities Polska, says that many banks that have been subject to market scrutiny over the last few years - because of swelling portfolios of under-performing loans, growing costs and inefficient IT systems - finally have their houses in order.
"The costs are under control," he says.
As such, he says that the investment fund market, which grew 27 percent in the first half of this year, is becoming a greater target for banks. He said that more banks, who - in higher interest rate environments - traditionally get most of their revenues from deposits and loans, would follow in the footsteps of Pekao SA, which has aggressively pushed its Pioneer Pekao investment funds to clients, aiding it in offsetting decreases in revenues.
And banks that want to stick to the loan business as a key fee-generating operation, will have to go into the country's growing mortgage market: "That's really the only growing loan segment," he says. In the past three years, the loan market in the country has been torn apart by a raft of defaults.
Some estimates have the loan portfolios of Poland's specialty mortgage banks alone growing to about zł.37 billion (?8 billion) at the end of this year, from zł.27 billion (?5.9 billion) at the end of last year. While interest rates encourage Poles to pull money from deposits, they also make loans to buy real estate more alluring. So banks are making a more concerted effort to attract this business.
At the same time, Zawada says banks are on a push to warm up to a more credit savvy market with a variety of credit cards.
Dorota Skala, a Warsaw-based analyst at Fitch Ratings, points out some reasons for optimism for firms' futures.
"The main thing is the economic revival," she says. If the economic revival continues it will place banks in better financial standing, and individual banks Fitch ratings will go up, she adds.
The economy's improved performance so far has aided banks immensely, as there have been fewer and fewer provisions made for bad loans owing to fewer bankruptcies.
"We hope that this will continue," she says. "The number of bankruptcies will reduce along with the number of irregular loans in portfolios," she says in expectation of next year.
While Fitch Rating's report, published last week, on the country's banking sector lauds the benefits that firms have received from the recent recovery in the Polish economy, the pressure on banks' operating revenues is expected to continue into next year as margins continue to fall. This is partially because of banks' "new focus on lower risk retail lending, lower domestic interest rates and strong competition for deposits," the report states.
Nevertheless, banks must continue to target new revenue streams.
Grzegorz Zawada, an analyst at Erste Securities Polska, says that many banks that have been subject to market scrutiny over the last few years - because of swelling portfolios of under-performing loans, growing costs and inefficient IT systems - finally have their houses in order.
"The costs are under control," he says.
As such, he says that the investment fund market, which grew 27 percent in the first half of this year, is becoming a greater target for banks. He said that more banks, who - in higher interest rate environments - traditionally get most of their revenues from deposits and loans, would follow in the footsteps of Pekao SA, which has aggressively pushed its Pioneer Pekao investment funds to clients, aiding it in offsetting decreases in revenues.
And banks that want to stick to the loan business as a key fee-generating operation, will have to go into the country's growing mortgage market: "That's really the only growing loan segment," he says. In the past three years, the loan market in the country has been torn apart by a raft of defaults.
Some estimates have the loan portfolios of Poland's specialty mortgage banks alone growing to about zł.37 billion (?8 billion) at the end of this year, from zł.27 billion (?5.9 billion) at the end of last year. While interest rates encourage Poles to pull money from deposits, they also make loans to buy real estate more alluring. So banks are making a more concerted effort to attract this business.
At the same time, Zawada says banks are on a push to warm up to a more credit savvy market with a variety of credit cards.
Dorota Skala, a Warsaw-based analyst at Fitch Ratings, points out some reasons for optimism for firms' futures.
"The main thing is the economic revival," she says. If the economic revival continues it will place banks in better financial standing, and individual banks Fitch ratings will go up, she adds.
The economy's improved performance so far has aided banks immensely, as there have been fewer and fewer provisions made for bad loans owing to fewer bankruptcies.
"We hope that this will continue," she says. "The number of bankruptcies will reduce along with the number of irregular loans in portfolios," she says in expectation of next year.
