Hot performer

Representatives of the European Bank for Reconstruction and Development (EBRD) denied a report last week that it would soon sell its stake in Poland's second-largest commercial bank. The report stated the EBRD was ready to cash in its 6.63% stake in Bank Pekao. The stake, commanding 10.9 million shareholder votes, is estimated to be worth zł. 2.1 billion ($521 million). "We are not selling any stake in the bank," according to an EBRD spokeswoman who asked not to be named. The EBRD, which injects cash into a variety of economic sectors to support development and modernization, bought into Bank Pekao in two separate transactions in 1998 and 2000. While officials say divestment isn't in the immediate future, banking analysts expect the EBRD to eventually do just that - a de facto endorsement of Pekao's development over the past three years.

"Clearly (the EBRD's) regional pattern has been to move out once banks are believed to have strong management … it supports the private sector only where needed," said Martin Van Tol, analyst with Raiffeisenbank in London. "Pekao has moved beyond that." Pekao has become the dominant privately held player on the domestic banking market, sector watchers said. In terms of assets the bank ranks No. 2 behind state-run giant Powszechna Kasa Oszczędności Bank Polski (PKO BP). Yet Pekao, whose assets increased 7.2% year on year in 2001 to some zł. 73.4 billion ($17.9 billion), leads the pack when measured by credit portfolios - zł. 31.9 billion ($7.8 billion). Combined, the two heavyweights generated nearly 60% of Poland's zł. 4.09 billion ($997 million) net profit in banking last year. Sector wide, Pekao accounts for roughly 18% of the nation's banking assets; driven largely by its change-minded owner, Italy's UniCredito. "In terms of all the major banks, it has been the most involved in terms of reforming itself," Van Tol said. Established in 1929 under the direction of the Treasury Ministry, Pekao had a distinct overseas presence. But the foreign-currency savings and international-payments bank of Poland's command economy took a huge leap toward the top of the market only after its 1996 merger with three state-run regional players, Łódź's Powszechny Bank Gospodarczy, Lublin's Bank Depozytowo-Kredytowy and Szczecin-based Pomorski Bank Kredytowy. After widening its domestic reach and garnering control of roughly one-fifth of the country's banking assets, Pekao's expansion also brought with it communist-era debts from regional banks.

Enter the Italians In June 1999, a consortium led by UniCredito gained a 52% controlling stake, laid out an ambitious restructuring and development program, and focused on the bank's retail operations. "They're fairly well along on it," said John Gibling, Standard & Poor's (S&P) director of financial services ratings for Central and Eastern Europe. "It's a fairly big challenge turning an old-system bank, where customer service and development of products wasn't there, into a sales-oriented customer-friendly one." Analysts said UniCredito made most of the right moves at Pekao on a number of levels. The bank set out to expand its already extensive branch network to more than 1,000 outlets by the end of 2002, as UniCredito brought in a team of experts who laid down deadlines for knowledge transfer. "In each case that (UniCredito) has done this, they've been able to work with local managers rather than sweeping everyone out," Van Tol said. That transformation is still reflected on the bank's bottom line. Pekao's return on equity has risen steadily in recent years, from 5% in 1999 to 20% in 2001, according to Raiffeisenbank. During last year's economic slowdown, which hit financial institutions hard across the sector, Pekao posted the best numbers industry wide with a net profit of zł. 1.26 billion ($307 million). "If this bank manages itself well through such an environment, it's ratings will continue to go up," said S&P's Gibling, which rates Pekao a triple-B, the highest marks afforded any Central European bank. UniCredito has yet to clearly define many elements of its strategy for the region but analysts say further acquisitions are expected. "It has been wanting to expand, and it will likely use Pekao as its center of expertise to grow the portfolio outside of Western Europe," Gibling said.