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Poland’s banking system is among the best positioned in Central and Eastern Europe (CEE) in terms of profitability, capitalisation and stability. The sector’s strength is supported by prudent regulatory supervision and by the country’s economic resilience. Poland is the only country in CEE that has been avoiding recession since the onset of the global economic crisis in 2008 and the following crisis in the eurozone, which is the country’s main trading partner. GDP growth has been underpinned by robust consumer spending and domestic investments, which have supported also the banking sector’s lending activity.
Poland’s economy suffered a significant slowdown over the last year, which led to a deterioration in the operating environment, but the overall condition of the banking sector remains good, which is visible in the sector’s high earnings, healthy capitalisation level, sound liquidity, improving funding stability and continued, although at a slower pace, lending growth. There are two major challenges for the banking system - a deteriorating asset quality and a tightening of interest margins that is caused by an intense competition for depositors amid falling interest rates and subdued credit demand.
Looking ahead, the worsened macroeconomic conditions and the lower interest rate environment, combined with tough competition for deposits, are likely to have a negative effect on Polish banks’ earnings performance this year, as the factors point at a decline in revenue (both interest and non-interest) and at weak interest margins combined with subdued lending activity, while operating costs and impairment charges are likely to increase. In addition, the implementation of a new special bank levy as of 2014 will exert extra pressure on profitability.
Despite those challenges, the Polish banking sector, which is about 70%-owned by foreign lenders, remains one of the healthiest in CEE and a key market for international players seeking growth and stability. Further consolidation on the Polish banking market is widely expected given the low level of concentration, the slowdown in market growth, which makes it difficult to grow organically, and the drop in interest rates, which makes it tough to generate profits for banks that lack sufficient scale of operations. Some foreign banks have looked for an exit to boost their capital positions and meet tightening regulatory requirements. But other, mainly bigger players are looking for such opportunities to strengthen their positions in the sector.
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