Foreigners buy up Poland’s banks

Poland suffered a dramatic bank collapse earlier this year and non-performing loans are building up on the balance sheets of many survivors. But there’s little need to panic. Poland has sold its banking system to foreign entrants attracted by the country’s growth potential. Lots of Poles don’t like what has happened. But it may be the model for the rest of the region. Ronan Lyons reports

Email a Friend

All fields are compulsory

Your name:
Your email:

To include more than one recipient, please separate each email address with a semi-colon ';'

Recipient email(s):

Email yourself a copy?
Comments:

Add Your Comment

All comments are subject to editorial review.
All fields are compulsory

Your name:
Your email:
(will not appear)

You may email your comment to a friend
To include more than one recipient, please separate each email address with a semi-colon ';'

Recipient email(s):

Publish your name?
Receive email notification of new comments posted by other users?
Email yourself a copy?

Comments:

I have read and agree to the Terms and Conditions







Warsaw's financial sector could prove a model for the region

In May this year Piotr Bykowski, controlling shareholder in Poland's Bank Staropolski, tried to escape from prosecutors by jumping from the second-story window of a Poznan court building, breaking an arm and leg and injuring his spine in the process. His bank collapsed with a capital asset ratio of minus 238%, leaving 150,000 bilked depositors in the lap of the Polish Bank Guarantee Fund.
The remarkable thing was that the debacle caused barely a shudder in the Polish banking system.
For so complete has the carve-up of Poland's banking spoils been by foreign investors that the country's banking system is effectively the preserve of international blue-chip banks.

The bleating of politicians and local business groups about the need to preserve Polish control over the Financial system has fallen on deaf ears. And while analysts may grumble about the dearth of liquidity in Polish bank stocks, nearly all accept that Poland has been the most successful of the transition economies in privatizing its banking system.
Foreign domination
Some 70% of the capital of the banking sector is controlled by foreigners, against 10% to 20% in most western European countries. Direct foreign investment in the sector stands at over $6 billion. To the chagrin of many locals, investors from Germany rank First, both in terms of individual investments and in the total amount invested. Italy and the US are next, followed by Ireland, the Netherlands and Austria. The list of investors also includes banks from Sweden, Korea, the Czech Republic, Malaysia and Canada.
The attractions of Poland are obvious. As early as 1994, the country was lauded as central Europe's tiger economy. It is the largest and most populous of the former Soviet satellite states and has a cheap well-educated labour force. Recovery was built on solid foundations. Shock therapy early on - sweetened by a generous stabilization from the IMF, and 50% forgiveness of official debt - avoided some of the problems that befell other countries in the region, such as persistent hyperinflation and free-falling currencies.

Geography also favours the Poles. The redrawing of the political map of Europe after 1989 left Poland forming the only buffer between Germany and unruly neighbours to the east, Russia, Belarus and Ukraine, making it a priority candidate for early membership of the EU.
Last year, the country's GDP was 28% up on 1990, compared with a 2.8% rise in Hungary over the same period, stabilization in the Czech Republic and Slovakia, and steep falls in Russia (down 40%) and Ukraine (down 63%).
Despite such heady economic growth, however, Poland is still remarkably under-banked. Only one in four Poles has a bank account and total bank debt is only 32% of GDP, compared with 95% in the Czech Republic and 120% to 130% in most western countries.
"As things stand, Polish banks have a lot of extra capital to place," says James Mellersh, eastern European banking analyst at Morgan Stanley Dean Witter. "Relative to assets, most Polish banks have twice as much operating capital as western banks or the likes of OTP in Hungary. Their return on equity is bound to increase as capital is used more efficiently."
Meanwhile, interest margins - at 4% - are still way above those in western Europe, where 1% is the norm. As foreign banks are lured in by potentially vast rewards, they have seized on the few remaining independent banks to provide instant market share. Most recently, the old foreign-trade bank, Handlowy, was sold to Citibank of the US. The state got a high price for its Handlowy stake, which valued the bank at around $1 billion, nearly 20% more than the under-bidder, Commerzbank, was offering. Citibank can accelerate Handlowy's expansion into the retail banking market.
According to chief executive Cezary Stypulkowski, Handlowy has set itself the target of almost doubling its retail base to 200,000 clients this year. There is also room for improvement in its corporate business. The bank still has less than 7% of the total corporate lending market, and just 4% of corporate deposits.
Citibank Poland is already strong in both corporate Finance and high-end retail banking. The Americans entered Poland back in 1991, as one of the First foreign banks to set up in the country. Since then, Citibank's presence has grown steadily: by the end of 1999 its Polish assets were worth $1.6 billion.
Citibank's Dipak Rastogi, regional head for 38 countries including central Europe, says the bank wants a mainstream position, not just in Poland but across the region. That may explain why it agreed to break with tradition and preserve the Handlowy name.
Although Citibank will be pleased to have drawn this plum asset in the Final scramble for established banking networks, its managers will hope they don't suffer the same disappointments as foreign investors in the stocks of Polish corporations who for years have complained that, no matter how impressive the country's economic growth, this has not translated into corporate profits.
And the fortunes in Poland of another global banking powerhouse, Deutsche Bank, illustrate the perils of investing in Polish banking, especially if you happen to be German. Its efforts to buy a controlling interest in BIG Bank Gdanski were thwarted at every turn. The Polish Securities Commission threatened an investigation into the acquisition tactics being used by the German bank, while the president of state-controlled insurer PZU was suspended after he backed Deutsche's BIG Gdanski bid. Indeed, opposition to Deutsche's Polish ambitions was entrenched at all levels - in the government, in the opposition SLD Party, in the National Bank of Poland and within the banking system. Deutsche's very name seems to stir emotions that even such compatriots as Commerzbank and Hypoffereinsbank - both with Polish banks to their name - can avoid.
Ultimately, however, Deutsche seems to have decided that the price - at almost three times book value - was not attractive. "They've been unlucky rather than hesitant or blundering," says Alistair Ryan, Polish analyst at Warburg Dillon Read. "The bigger the buyer, the greedier the seller is. But the fact remains that Commerzbank adopted a more low-key approach, buying a stake in a mid-sized bank (BRE) and growing it gradually." The irony is that Deutsche representatives in Poland will admit privately to a certain sense of relief in having failed in their bid for BIG - a bid fuelled largely by a sense of panic in head office at being left behind in the Polish market grab. "BIG is a plain vanilla bank with a return on equity in the mid-teens," says one insider. "As the battle to win control intensified the share price began to look like bad value."
Page 1 of 4 Next | Single Page

Abigail Hofman:

The US treasury market reaches breaking point

Foreigners buy up Poland’s banks

Email a Friend

Add Your Comment

US treasury market reaches breaking point

Top 10 financial definitions that are funnier since the credit crunch

Top 10 reasons to tell your boss you deserve a bonus this year

Eksportfinans turns to government for funding

Nomura’s great leap forward: Will Lehman takeover help fulfil its global ambitions?

Why Hank Paulson has failed as Treasury secretary

Middle East real estate debate: Middle East real estate holds its own in unsteady global markets

Plans Look To The New Frontier

Country risk September 2008: Money talks in a world of risk

US treasury market reaches breaking point

Nomura Eyeing Lehman Bonus Renegotiation

Nomura’s great leap forward: Will Lehman takeover help fulfil its global ambitions?

Corporate defaults: The LBO zombies set to stalk the market

Real estate: Global volumes slump in 2008, hangover predicted for 2009

Latest Issue