For the first time in 27 years, the Polish banking sector as a whole recorded a loss last year. The profitability of Polish commercial banks was among the lowest in the European Union, performing better than only Greece, Spain, Cyprus and Ireland.
According to an analysis by the Dziennik Gazeta Prawna daily of results published by all Poland-based banks, the sector recorded a collective loss of 953 million zloty (€207 million) last year, compared with a profit of 12.7 billion zloty (€2.76 billion) in 2019.
Last year, the Polish banking sector was hit by the pandemic, which reduced customer demand for loans and increased the threat of defaults, as well as court rulings concerning almost €26 billion in foreign-currency mortgages.
As a result of the growing risks associated with holding Swiss franc debt, banks have been forced to increase their reserves from 1.7 billion to 10.9 billion zloty in the past year. Seven of the 12 banks to record a loss had bolstered their provisions for legal risk related to foreign currency mortgages.
The bottom line of banks has also been squeezed by record-low interest rates, which have reduced income from credit products. To compensate for these losses, banks have slashed costs (by 3%) and increased commissions and fees (income from which grew by 7%).
Last year’s loss was the first time that the sector has sunk into the red since 1993, when the total losses for commercial banks in Poland reached 401 million zloty, reports Dziennik Gazeta Prawna.
In recent years, Polish banks had already suffered from low return on equity ratios. In 2019, the average rate of return on capital in the banking sector was over 7%. This has now dropped to -0.5%.
For comparison, these profitability ratios were only lower in Ireland (-2.2%), Cyprus (-3.3%), Spain (-3.5%) and Greece (-7.8%). Top performers in Europe included Slovenia (11.3%), Lithuania (10%) and Romania (9%).
Last year a number of large banks, which had previously weathered adverse market conditions, recorded losses, including the biggest, state-owned PKO BP, with a loss of 2.9 billion zloty.
Collectively the profits of those lenders with a balance sheet exceeding 100 billion zloty stood at 1.1 billion zloty, a 90% profit drop from 2019.
Medium-sized banks (with assets of 10-100 billion zloty) recorded a collective loss of 1.8 billion zloty, compared with a profit of 1.5 billion zloty in 2019. Many smaller lenders, including Getin Noble, Nest Bank and Plus Bank, which had already struggled in past years, again failed to turn a profit.
Main image credit: Gosia K/Pixabay (under Pixabay license)
Maria Wilczek is deputy editor of Notes from Poland. She is a regular writer for The Times, The Economist and Al Jazeera English, and has also featured in Foreign Policy, Politico Europe, The Spectator and Gazeta Wyborcza.
