Bank profits to fall after attacks

Banks profits were down before the collapse of the world’s financial center. Now they could drop even more.
By : Leo Broomfield

   Banking analysts last week played down any immediate effects of the New York terrorist attack on the Polish banking sector, although many bankers said the disaster would certainly not help falling profits this year.

   “Bank profits this year were already set to be hit before the events in New York,” said Robert Brzoza, analyst at PKO BP brokerage in Warsaw.

   The Central Statistical Office (GUS) reported last week that total bank profits fell 1% to zł. 2.48 billion ($590 million) in the first half of 2001 against the same period last year.

   Banks saw credit risk worsening with bad debts on the rise and lower income from fees. Operating costs also increased by 40.25% during the same period, according to GUS. Only regional and cooperative banks were largely unaffected.

   As an indication of the psychology of the big players, BRE Bank last week bought up 84,000 of its own shares. The bank said this was to shore up its wavering share price on the Warsaw Stock Exchange (WSE).

   Analysts, however, pointed to longer-term, indirect impacts of the attacks on the United States on the Polish economy. They said they had dented already falling investor confidence in emerging markets and would likely see an outflow of investment capital.

   They said the attack may have more of a pyschological impact on the Polish banking sector and would hit some areas more than others. Analysts also said the economic consequences of the attack could further lower banks’ loan quality, as more small and medium-sized firms face problems exporting to the European Union (EU) and the United States.

   “If we see a simultaneous fall in consumer confidence in the U.S. and stock market falls, a further worsening of competitiveness and delay in economic reheating is possible,” said Piotr Sperka, an analysts at Powszechna Kasa Oszczędnoœci Bank Polski (PKO BP) bank in Warsaw. “A recession in the U.S. would hit the rest of the world, which is heavily dependent on the U.S. economy.

   “A slowing down of the European economies would mean a drop in Polish exports to the EU. Higher fuel prices would mean more expensive imports. This would mean a higher current account deficit and a weakening of the złoty.”

   But others said they did not expect a recession in America. “There will be no recession in the global economy and therefore no recession in Poland,” said Janusz Jankowiak, the chief economst at BRE Bank in Warsaw. “The cooperation of central banks and governments against the negative economic trends will be more coordinated than during the Gulf War. The United States at that time aggressively cut interest rates, though did so alone. Today there’s more room for rate cuts (after last week’s rate cut, U.S. rates stand at 3%). The Fed is also helping other central banks.”

   But some people remained pessimistic. “There are one or two darker scenarios for the Polish economy,” said Tomasz Zwoliński, analyst at Global Capital Partners Poland, in Warsaw. “The first is lower investment expenditure by companies, especially in IT and programming. The second may hit banks, which may have problems recouping credits.”