Treasury plans could damage bottom lines at state-run banks

By halting state-owned bank privatizations and retooling those same institutions to finance elements of the government's economic package, the Treasury Ministry has industry watchers and opposition politicians worried that some of the country's biggest financial institutions will be drained of assets. "It seems to me that this is spoiling and fending off the market," said Dariusz Filar, head economist at Bank Pekao. "I don't know of a case where a company under the umbrella of the state had its financial results skyrocket." Last week, Treasury Minister Wiesław Kaczmarek reiterated his intent to block sell-offs of state savings giant Powszechna Kasa Oszczędności Bank Polski (PKO BP), the nation's largest commercial bank with some 7,000 branches, as well as Bank Gospodarstwa Krajowego (BGK), Bank Gospodarki Żywnościowej (BGŻ) and Bank Pocztowy. BGŻ, geared toward the agriculture industry, is a retail and corporate bank, as is BGK. Bank Pocztowy offers retail services.

Treasury Ministry representatives said its banking sector strategy is still being drafted but offer no timetables for its release. While tight-lipped on specifics, officials have said the remaining state-controlled banks factor heavily into Finance Minister Marek Belka's economic recovery package, via preferential loans and credits to prop up a struggling construction sector, as well as servicing public debt. Belka has targeted building some 140,000 new housing units per year by 2004. Critics, however, worry about the implications for the banks' operations and long-term competitiveness. As European Union integration draws closer, some say the Democratic Left Alliance (SLD) is taking a page from the past. "PKO BP is being treated as a banking arm of the government," said Zyta Gilowska, an MP with the opposition Civic Platform of the Polish Republic (PORP) and co-chairman of the Sejm's public finance committee. "If the government had good ideas, it would introduce them with the help of any bank. The fact it's inclined to use state-owned banks shows its strategy isn't so breathtaking." The move could be particularly bad for the banks' bottom line, hurting state coffers in the end, analysts said. "Offering cheaper loans will lead to lower bank profits ... and as a result lower taxes to the state," said Jarosław Deryło, banking analyst at the Adam Smith Research Center in Warsaw.

Meanwhile, others weren't quite sure what to make of the minister's thoughts on foreign-owned banks. Local media quoted Kaczmarek as saying that foreign players make "investment decisions that do not benefit the Polish economy." He went on to cite foreign banks' domination of the Polish market as sufficient reason to keep remaining state banking institutions public. Roughly 70% of Poland's banking assets have been sold to foreign investors over the past 10 years. "It's an odd statement in light of both Poland's accession to the EU and the globalization of financial markets ... national banks belong to the past," Filar said. Rather, privatization is on the backburner. Kaczmarek said he would not rule out floating minority stakes in the future, adding that any investors would have limited voting rights. The previous Solidarity Election Action (AWS) government had pushed to float 30% of PKO BP in a 2002 initial public offering (IPO). In light of the government's row with pan-European insurer Eureko over control of Powszechny Zakład Ubezpieczeń (PZU), many question the interest level of potential investors. "What company would spend that kind of money for an enterprise it cannot control?" Filar said.