Press Breakfast: Money talks

A report by business consultancy Capgemini published earlier this year shocked many in Poland. According to the figures, the price for a basket of typical banking products in Poland is higher than the average not only in the CEE region, but also higher than the EU and the global averages. However, experts claim that due to the difficulty in defining what is a "typical" product in different markets, the figures cannot be considered representative. Another report prepared by the European Commission is considered to be more realistic. According to the report, the average fee for a checking account in Poland is EUR 40 annually, much less than in Luxembourg (EUR 265) or Italy (EUR 204), but at the same level as Spain and more expensive than in Finland or Sweden (EUR 25 and EUR 22 respectively).

The managing director of financial services at PricewaterhouseCoopers (PwC), Adam Uszpolewicz, underlines that the study shows that per capita income or banking sector competitiveness do not necessarily have any effect on prices. He said that when talking about the price of banking services, one must consider factors not only related directly to the banking sector. "Telecom and internet services in Poland are among the most expensive in Europe," Uszpolewicz said, adding that this is a barrier to lower prices for banking services.

Light years away

Despite its steady growth, the Polish banking sector is still relatively small in comparison to those of Western countries. From the perspective of the assets-to-GDP ratio, the Polish market placed second to last in the EU in 2005. The loans-to-GDP ratio also puts Poland second to last, while in the deposits-to-GDP ratio only two countries ranked behind Poland.

"We are light years away from the West," the president of BRE Bank Sławomir Lachowski said.

The financial sector has been undergoing changes typical for modern countries. While in 1996, banks had 94.4 percent of the financial sector's assets, ten years later the figure is at 68.9 percent. Today, insurance companies have a 10.6-percent share of the market, and investment funds have gathered 8.5 percent of assets.

"In the last 10 years the investment funds' share in the retail segment has increased by 10 times," the president of investment fund Pioneer Pekao TFI, Zbigniew Jagiełło said. Currently, more than zł.23 billion is held in investment funds. Jagiełło expects this figure to grow to over zł.30 billion.

"Then competition between investment-fund managing companies will start. Right now there isn't much competition," he said, explaining that it is the banks who are losing assets to investment funds.

Foreign bodies

However, there is a fly in the ointment in the investment fund business. As Jagiełło pointed out, the bulk of the investment funds available on the Polish market are not Polish products. Most of the funds are registered in Luxembourg.

"The Polish legislator has caused a situation where it is easier to register a fund in Luxembourg rather than submit to supervision in Poland," Jagiełło said. PwC's Uszpolewicz claims that if the new Financial Supervision Commission (KNF) doesn't take the right steps, we will be seeing more investment funds being registered in Dublin or Luxembourg.

Regarding the new supervisory body, the experts were very careful with the words they chose to describe their expectations. "If the KNF functions well, then the growth of the banking sector will be harmonious," Lachowski said.

The big event in the banking industry this year was the Pekao-BPH merger. "This is just the beginning of further changes, because our market is very fragmented in comparison to most Western markets," Lachowski predicted. "It is an inevitable process."

The BRE Bank president underlined the importance of innovation as a source of increased competition on the market. "If you have an idea and an innovative strategy you can compete with the leaders," Lachowski summarized, pointing out that six years ago no one in Poland would have thought that an internet bank [BRE Bank group's Mbank] could have one million clients.