S&P downgrades Polish banking

Standard & Poor's Ratings Services downgranded its opinion on the risk of the Polish banking sector to negative from stable. It also confirmed the following ratings of mBank and Pekao with a negative outlook (in the latter case - reduced from stable). "Our negative view about the risk sector reflects our opinion, according to which the banking sector's ability to absorb losses and to cope with shocks may weaken over the next two years," a statement by S&P read. According to the agency, the new tax (0.44% of assets), increased contributions to the Bank Guarantee Fund (BFG) and the potential costs of conversion loans in the Swiss Franc, as well as "challenging" environment characterized by low interest rates significantly reduce banks' profits. "This, in our opinion, will reduce capital buffers in the banking sector and the ability to generate new business, especially for smaller banks. Moreover, we believe that the structure of the banking sector can change over time, due to the pressure of consolidation and strategic decisions of foreign parent companies,"- we read on. Moreover, S&P believes that the ability of the private sector to handle the increased cost of debt in foreign currencies may weaken if the economic outlook and the zloty will be subject to further depreciation. Overall, the agency stated that "the Polish banking system is facing a negative trend with respect to risk, economy and industry in the next two years."