Bank fund trims fat to modernize

The Bank Guarantee Fund (BFG) is pushing to streamline the way in which it structures its operations to enable it to react more quickly and flexibly to banks' needs, Maria Pawelska, a member of the fund's board told the WBJ. The BFG has a mandate to maintain the security of banking deposits and to assist otherwise healthy banks when they are unable to make payments. In pursuing this mission, the fund has found it cumbersome to operate with two different funds - one that guarantees customer deposits will be paid in the case of bankruptcy and another that preempts banks from going bust. "We are considering joining the two funds to be able to create a system that would (better) support banks in trouble," Pawelska said. "It would enable us to take decisions on the future of troubled banks that would be the best for them and their customers. That would be based on the 'least-cost' rule."

Besides adding flexibility, operating only one fund would also make it less expensive to react to banks in need. The impetus for this change is a need to grow with an evolving and modernized banking sector, Pawelska said. But she does not expect the situation to worsen in terms of the number of Polish banks that are threatened with insolvency. At present, Pawelska said the market is still working to ameliorate the financial position of Wschodni Bank Cukrownictwa, which due to poor risk management could have lost as much as zł. 600 million ($142.9 million) earlier this year had the right emergency steps been taken by the BFG as well as by the National Bank of Poland's Commission for Banking Supervision (KNB). The KNB appointed emergency management to WBC, which is currently deliberating on its future plans. Though bankruptcy at WBC was averted, BFG would be able to be more flexible when reacting to similar situations should they arise. But Pawelska remains sanguine that the future is bright for the sector. Similarly, in creating a new fund, BFG also plans to decide how it will collect more cash. "The whole problem with such a venture is to collect proper funding," Pawelska said. She added that BFG is still consulting the banks that would provide the capital on how to collect it.