EU offers new challenges, bank sector to benefit
They believe that the medium- to long-term outlook for the local banking sector after EU membership is a mixed bag, as a greater inflow of deposits is expected just when larger corporations are likely to begin seeking foreign banking assistance for cross-border business.
This will also occur at a time when the foreign owners of Polish banks re-evaluate their holdings and spearhead what some believe will be a major reshuffling of foreign-owned banking houses.
"I don't expect the EU to have an immediate dramatic effect," says Artur Szeski of CDM Pekao SA brokerage. "In the longer run, I expect that there will be a mix of positive and negative results."
Szeski and others point out that local banks will be awash with new deposits as the EU pours in billions of euros in structural funds to build up the country's scant infrastructure and subsidize millions of farmers. This is of particular importance, as the country's banks have recently been lamenting a decline in deposits caused by slowly falling interest rates. Instead, consumers have begun placing their savings in higher yielding investments, such as investment funds, whose numbers have skyrocketed of late. Analysts also expect that rural dwellers who have, to date, been able to subsist without a bank account, will now have to open accounts to sock away subsidies.
But those funds, notes Szeski, will largely be directed at the smaller, cooperative banks.
What is more, the EU is only co-financing projects, so the Polish banks - and probably the larger ones, at that - will have to step in to offer more financing options.
"The EU could be the spark that's needed to revive lending," Szeski says.
Over the past two years, the banks have had to reexamine their lending procedures after being burned in the past with mountains of bad debts on their books. In the interim, banks decreased lending severely and stepped up debt assessment procedures to the levels of Western banks. The latter effect has, in turn, toughened up firms for expected Western competition.
BRE Bank, for one, was bitten by bad debts - and, some say, an overly aggressive investment strategy - but has, according to its president, Wojciech Kostrzewa, emerged from it all the stronger. Today, the German-owned bank is aggressively promoting its retail and mortgage banking arms.
Last week, the firm's shareholders voted to float 4.5-6.5 million shares, a portion of whose proceeds are to be used to purchase a 50 percent stake in Rheinhyp-BRE mortgage bank.
Bad debts seem to have better adjusted banks' strategies, which is why the EU could reinvigorate the lending business.
Furthermore, the EU could increase cross-border trading as Polish firms stretch out to the East and West, and foreign companies consolidate their positions here.
"There should be strong cross-border trade," Szeski says.
This would allow banks to take part in new business, thus improving their bottom line.
At the same time, the future is not completely bright for the sector. The EU naturally breeds more competition, which will shrink margins - especially in retail banking.
"I can see one or two negative signs for the future," notes Szeski.
Some in the industry expect and fear that more foreign banks will open up Polish branches to handle foreign currencies, which is currently a high-margin business for banks.
HSBC Bank Polska recently entered the banking market with small operations, but Chris Ignatowicz, chief executive, says he expects them to grow in time.
In the more distant future, the country's joining the euro could hurt Polish banks. At present, local banks profit from currency trading, particularly between the zloty, the euro and the dollar. Once the country joins the new currency, it will lose out on profits because the spread between the euro and the other currencies is significantly smaller. Yet the country is not expected to join the euro until around 2010. Until then, there is no threat.
In this environment, market watchers anticipate that there will be a wave of mergers and acquisitions in the sector. This could occur among foreign owners, but also locally.
The big-ticket M&A expected is between PKO BP, the country's largest bank, and PZU, Poland's leading insurer. Last week, Andrzej Podsiadło, PKO president, restated the much-rumored possibility that the state-owned bank could buy 10-30 percent of the state-owned insurer. The state will make its final decision at the end of June when it files its prospectus with the Securities and Exchange Commission.
A closer union between the two institutions - whether or not they are ever privatized - would create a national bankassurance powerhouse, borrowing a financial model from European banks and insurance companies.
What's more, should such a deal come to fruition, it would finally put an end to the conflict between the government and Dutch insurer Eureko over the ownership of PZU.
On top of that, the market is eagerly anticipating the privatization of PKO. The Treasury Ministry recently selected Credit Suisse First Boston to advise on the potential deal.
But it's not only the state-owned institutions that are getting restless. The foreigners are becoming uneasy, too.
Earlier in the year, there was a swarm of rumors that foreign banks would begin making their move to consolidate the sector. Citibank, UniCredito, AIB, Deutsche Bank, Commerzbank and HVB were all said to be considering buying a new firm or just reassessing their own holdings in the country.
Some foreign outfits, such as Commerzbank, have had financial trouble at home, placing lesser importance on their Polish arms.
Analysts for a while expected that BRE Bank, owned by Commerzbank, would merge with BPH-PBK, which is owned by HVB. The deal would have created a concern with over zł.68 billion in assets. But no actions have been taken yet. The market awaits.
This will also occur at a time when the foreign owners of Polish banks re-evaluate their holdings and spearhead what some believe will be a major reshuffling of foreign-owned banking houses.
"I don't expect the EU to have an immediate dramatic effect," says Artur Szeski of CDM Pekao SA brokerage. "In the longer run, I expect that there will be a mix of positive and negative results."
Szeski and others point out that local banks will be awash with new deposits as the EU pours in billions of euros in structural funds to build up the country's scant infrastructure and subsidize millions of farmers. This is of particular importance, as the country's banks have recently been lamenting a decline in deposits caused by slowly falling interest rates. Instead, consumers have begun placing their savings in higher yielding investments, such as investment funds, whose numbers have skyrocketed of late. Analysts also expect that rural dwellers who have, to date, been able to subsist without a bank account, will now have to open accounts to sock away subsidies.
But those funds, notes Szeski, will largely be directed at the smaller, cooperative banks.
What is more, the EU is only co-financing projects, so the Polish banks - and probably the larger ones, at that - will have to step in to offer more financing options.
"The EU could be the spark that's needed to revive lending," Szeski says.
Over the past two years, the banks have had to reexamine their lending procedures after being burned in the past with mountains of bad debts on their books. In the interim, banks decreased lending severely and stepped up debt assessment procedures to the levels of Western banks. The latter effect has, in turn, toughened up firms for expected Western competition.
BRE Bank, for one, was bitten by bad debts - and, some say, an overly aggressive investment strategy - but has, according to its president, Wojciech Kostrzewa, emerged from it all the stronger. Today, the German-owned bank is aggressively promoting its retail and mortgage banking arms.
Last week, the firm's shareholders voted to float 4.5-6.5 million shares, a portion of whose proceeds are to be used to purchase a 50 percent stake in Rheinhyp-BRE mortgage bank.
Bad debts seem to have better adjusted banks' strategies, which is why the EU could reinvigorate the lending business.
Furthermore, the EU could increase cross-border trading as Polish firms stretch out to the East and West, and foreign companies consolidate their positions here.
"There should be strong cross-border trade," Szeski says.
This would allow banks to take part in new business, thus improving their bottom line.
At the same time, the future is not completely bright for the sector. The EU naturally breeds more competition, which will shrink margins - especially in retail banking.
"I can see one or two negative signs for the future," notes Szeski.
Some in the industry expect and fear that more foreign banks will open up Polish branches to handle foreign currencies, which is currently a high-margin business for banks.
HSBC Bank Polska recently entered the banking market with small operations, but Chris Ignatowicz, chief executive, says he expects them to grow in time.
In the more distant future, the country's joining the euro could hurt Polish banks. At present, local banks profit from currency trading, particularly between the zloty, the euro and the dollar. Once the country joins the new currency, it will lose out on profits because the spread between the euro and the other currencies is significantly smaller. Yet the country is not expected to join the euro until around 2010. Until then, there is no threat.
In this environment, market watchers anticipate that there will be a wave of mergers and acquisitions in the sector. This could occur among foreign owners, but also locally.
The big-ticket M&A expected is between PKO BP, the country's largest bank, and PZU, Poland's leading insurer. Last week, Andrzej Podsiadło, PKO president, restated the much-rumored possibility that the state-owned bank could buy 10-30 percent of the state-owned insurer. The state will make its final decision at the end of June when it files its prospectus with the Securities and Exchange Commission.
A closer union between the two institutions - whether or not they are ever privatized - would create a national bankassurance powerhouse, borrowing a financial model from European banks and insurance companies.
What's more, should such a deal come to fruition, it would finally put an end to the conflict between the government and Dutch insurer Eureko over the ownership of PZU.
On top of that, the market is eagerly anticipating the privatization of PKO. The Treasury Ministry recently selected Credit Suisse First Boston to advise on the potential deal.
But it's not only the state-owned institutions that are getting restless. The foreigners are becoming uneasy, too.
Earlier in the year, there was a swarm of rumors that foreign banks would begin making their move to consolidate the sector. Citibank, UniCredito, AIB, Deutsche Bank, Commerzbank and HVB were all said to be considering buying a new firm or just reassessing their own holdings in the country.
Some foreign outfits, such as Commerzbank, have had financial trouble at home, placing lesser importance on their Polish arms.
Analysts for a while expected that BRE Bank, owned by Commerzbank, would merge with BPH-PBK, which is owned by HVB. The deal would have created a concern with over zł.68 billion in assets. But no actions have been taken yet. The market awaits.
