High rates keep property lending in its infancy
High interest rates are not only hampering the development of Poland's mortgage market, they're also benefiting Western banks offering hard-currency loans and low rates, banking sources said last week.
"The demand (for loans) is very high, but high interest rates remain a problem," said Lech Gajewski, executive director of Bank Slaski, the Katowice-based bank owned by the Dutch ING Group.
Gajewski said that the mortgage market is divided between customers willing to finance the purchase of their residential properties and investors looking to finance commercial projects such as shopping malls, offices or hotels. Individuals are mostly targeted by local retail banks while investors tend to seek hard-currency loans from Western banks operating in Poland or Western Europe.
Both sectors have been growing fast.
"Loans to individual customers is one of the most dynamic segments of the market," Gajewski said, adding that mortgage lending is growing by 80% a year.
The value of all bank property loans to individuals is estimated at zl. 4.5 billion ($1 billion), Gajewski said.
Powszechna Kasa Oszczednosci Bank Polski (PKO BP) is the country's biggest lender with total loan value of zl. 2.4 billion ($530 million), more than 50% of the market.
The state-owned PKO BP is followed by Polska Kasa Opieki (Pekao), owned by Italy's Unicredito Italiano. Its mortgage loans are valued at zl. 340 million ($75 million), about 7.5% of the market.
Mortgage loans granted by other Polish banks totaled less than zl. 300 million ($65 million). But the market share of those banks has been growing; only a few years ago, PKO BP had about 90% of residential sector loans. "All banks are entering this market," Gajewski said.
Bank Slaski, which started offering loans only a couple of years ago, has already lent zl. 155 million ($34 million), Gajewski said.
Banks are entering the residential sector because loans to individuals buying property are considered safe and profitable. "A bank has a customer for a long period of time," Gajewski said. "So far the (clients') portfolios have been very good."
But although mortgage loans have strong growth prospects, nothing much is likely to happen until interest rates begin to fall.
Mortgage loan rates denominated in zlotys are now higher than 20%, while loans denominated in euros or dollars are about 10%. Because of that difference, many customers are willing to risk borrowing in hard currency. Bank Slaski has only about 30% zloty-denominated loans while the rest are in euros and dollars.
Companies investing in property development also prefer to borrow in hard currency. In these cases, however, the loan amounts are usually so high that most investors decide to borrow from Western banks.
"We offer financing in hard currency," said Klaus Wenz, head of the Polish office of Deutsche Hyp, a German mortgage bank whose Polish office lends money for shopping mall, office and hotel developments. Earlier, the Dresdner Bank-owned Deutsche Hyp offered real-estate financing in Poland from its Frankfurt office, Wenz said.
He said that because local banks are not yet able to lend significant sums long term, lending to corporate real estate is mostly dominated by German and Austrian banks with Germany's Hypo-Vereinsbank considered the market leader.
Western banks can lend at an annual rate of about 5% for five to 20 years, Wenz said. "We specialize in long-term financing," he said.
This gives Western banks a competitive edge over local banks, which are unable to offer the same low rates and long repayment periods to property investors, Wenz said.
But only big investors are allowed to borrow from Western banks. Deutsche Hyp's minimum loan value is O5 million, he said.
Wenz wouldn't put a price tag on the total value of the lending market to property entrepreneurs. But Deutsche Hyp, which between March and November granted loans valued at O150 million, estimated its market share at about 5%. This would translate into total lending to the commercial property sector at
O4 billion a year.
The market, which is still relatively small, is growing at about 100% annually, Wenz said, and most of the growth comes from regional cities because Warsaw's market is saturated right now. "We are very interested in this market," he said. "It's a good investment."
