Emerging Europe: Statist streak ‘domesticates’ Polish banks

Deutsche joins list of sellers; public-sector buyers in driving seat.

The drive to renationalize the Polish banking sector is gaining momentum as public-sector buyers close in on assets belonging to UniCredit and Raiffeisen, and Deutsche Bank joins the list of foreign players looking to exit the market.

State-controlled insurer PZU and development fund PFR were reported in late November to be on the verge of buying UniCredit’s remaining 40.1% stake in Bank Pekao, Poland’s second-largest lender. 

Meanwhile, Raiffeisen Polbank is expected to be sold by the end of the year to Alior Bank, the local lender in which PZU acquired a controlling stake in May 2015. 

PZU has indicated plans to combine its banking assets – which include BPH Bank, bought by Alior from GE in March – to create a new Polish national champion. 

The new lender would have a market share by assets of close to 20%, putting it ahead of long-time market leader and fellow public-sector bank PKO BP.

PKO BP is itself taking part in the current round of M&A, having agreed in November to buy Raiffeisen’s Polish leasing arm for Z850 million ($202 million).

Consolidation

Bankers say further consolidation is likely, given the highly fragmented nature of the Polish market and the diminishing returns available. Already squeezed by low interest rates, profits have been further crimped this year by a punitive bank tax. 

Piotr_Chudzik-160x18
Piotr Chudzik,
Trigon

"Growth in the banking sector in Poland has stopped, so we are seeing a natural trend towards consolidation as players with substandard size start to leave the market," says Piotr Chudzik, managing partner at local investment bank Trigon. 


Poland currently has 13 universal banks, of which only PKO BP and Bank Pekao have a market share of more than 10%. Chudzik predicts that as many as eight smaller players could exit the market over the next two to three years, leaving five or six large universal lenders. 

That would mean disposals by a number of foreign banks with subscale Polish franchises. Deutsche Bank Polska, which was put up for sale in November, is one of the smallest, with assets of just Z38 billion. Other western banks with less than 5% market share include Citi and BCP, owners of Bank Handlowy and Bank Millennium, as well as BNP Paribas.

Ownership

On the buy side, the main players will likely continue to be public sector institutions. Poland’s ruling Law and Justice Party (PiS), which took power in 2015, has made it clear that it wants to see more of the banking sector under domestic ownership – which, for the moment, seems to mean state ownership. 

Deputy prime minister Mateusz Morawiecki, former chairman of Santander subsidiary Bank Zachodni WBK, explicitly stated in August that the government would look to buy or "domesticate" any foreign-owned banks that come up for sale.

Locals confirm that non-Polish bidders were warned off participating in recent bank sales. "There are plenty of foreign players who would still like to expand in Poland," says a senior banker in Warsaw. "If they were allowed to, they would buy – but they have been deterred by the state."

Topping the list of would-be foreign buyers are Santander, Commerzbank and ING, all of which have strong Polish operations. BZ WBK has a market share of 9.1%, while Commerzbank subsidiary mBank and ING Bank Slaski are also in the top five by total assets. 

"They would all likely want to participate in the current wave of consolidation if they were permitted to in order to increase their market shares to over 10%," says Gunter Deuber, head of CEE research at Raiffeisen Bank International. At the same time, he adds, all three are large enough not to be forced out of the market. "They have proven business models and sizeable operations," he says. "I don’t expect to see them exiting Poland in the short term." 

Difficulties

For banks that do want to leave, meanwhile, the ban on acquisitions by foreigners has made for a difficult market. Competition on the buy side is all but nonexistent, giving potential acquirers a very strong hand in negotiations – particularly as several sellers are known to be working to tight deadlines.

UniCredit was reportedly looking to agree terms for the sale of Bank Pekao by December 4 to avoid any potential turbulence following the Italian referendum. Meanwhile, the Polish regulator KNF has ordered Raiffeisen to find a buyer for Polbank by the end of the year, after the Austrian bank reneged on a commitment to list its subsidiary on the Warsaw Stock Exchange earlier this year.

Raiffeisen’s task has been made more challenging by its large holdings of legacy Swiss franc mortgages, which KNF has made it clear the seller must retain. Alior is also reported to be seeking to force the Austrian bank to carve out other long-term loans in Polbank’s portfolio ahead of the acquisition. 

"This is definitely a buyers’ market," says Deuber.

Deutsche will face similar hurdles in disposing of its Polish arm, which has high concentrations of foreign currency loans, according to locals. Bank Pekao, by contrast, was one of the few foreign banks to avoid the Swiss franc exposures that have plagued Polish lenders since the zloty’s collapse after the financial crisis. 

Deuber also notes that Poland’s deteriorating economic outlook could add to sellers’ difficulties: "If this raises issues on the fiscal side, there is a chance that the banking tax could become more punitive, which would again be a negative for any ongoing M&A procedures. This is another reason to think that it may be better to get deals done sooner rather than later."