Poland will keep its banking sector more fragmented than in western Europe to prevent a build-up of risks that could hurt its robustness and ultimately impact state finances, the deputy head of Poland's financial regulator KNF said. Wojciech Kwasniak said he was determined to ensure Polish banks, set to book near-record profits in 2013, maintained their financial strength which meant none had to be bailed out by the state as a result of the 2007-2008 financial crisis.
"We will not copy the mistakes made by others," Kwasniak told Reuters in an interview at the regulator's offices in central Warsaw, having been asked about the significantly higher level of banking concentration in western Europe. The KNF has earned a reputation for tough oversight of banks, with employees at some lenders saying they have to set aside teams of employees to deal with frequent visits of the regulator's staff. It supervises a diverse sector including 42 domestic commercial banks such as state-controlled PKO and Unicredit's Pekao unit, as well as 572 co-operative credit institutions and 27 branches of foreign credit institutions.
That number of institutions - and the fact that the five largest banks account for 46 percent of total sector assets - means Poland has a less concentrated bank sector than most countries in the region, reflecting its desire to keep a lid on potential restructuring costs from having a small number of banks that are too big to fail. Kwasniak, a graduate of Warsaw University's Faculty of Management whose experience of bank regulation stretches back to the turbulent 1990s, just after Poland overthrew communism and switched to a market economy, said he was determined to make sure the sector avoids the mistakes that led to the credit crunch.
"We have to be sure that Polish banks are stable at any given time ... and that we would be able to clean up the situation without applying for international help," said Kwasniak, nicknamed "the general" because of his decisive style. After four years of financial turmoil in Europe, Polish banks are in relatively good shape, helped by a conservative approach to risk management and a domestic economy, the largest in the region, that has proven one of the continent's most resilient.
The Tier 1 ratio of Polish banks, a measure of capital strength, amounts to 14.4 percent, according to KNF's data, compared with 12.4 percent on average for European banks, as shown by Thomson Reuters data. Also, the bank sector's return on equity (ROE), a measure of profitability, stands at 10.8 percent. By contrast, consultancy Oliver Wyman estimated the ROE at European banks as a whole plunged to 4 percent last year, from about 20 percent in 2006.
About two-thirds of Poland's banking system is controlled by foreign lenders, mostly from western Europe. The country has seen a spate of deals in recent years as some parent institutions including Sweden's Nordea and Ireland's AIB sold their holdings. Restructuring of the sector looks set to continue with several Polish banks having expressed interest in Bank BGZ after its owner Rabobank said in June it was reviewing its options for the lender.
UniCredit's Polish unit Pekao has even made a preliminary offer for BGZ, though the regulator, which needs to approve bank take-overs, said the issue of a change of ownership at BGZ had not yet arisen. Kwasniak remains a determined upholder of discipline in the sector. "If you compare financial regulation to road traffic, then there are people who can put up speed limits. And those who break the rules are disciplined or thrown out of the highway," he said, banging his hand on the table.
Pressure from the regulator last week led Alior Bank to change the way it accounted for revenue from its insurance business - a change that led Alior to warn it would incur a large charge in the third quarter, which wiped out about 1.2 billion zlotys ($393.3 million) from its stock market value. Kwasniak said there was interest from buyers in a controlling stake in Alior Bank, which has been put up for sale. But he added all banks in Poland, including Alior, needed a stable investor with a controlling stake. "There is nothing worse than a bank without a real owner," he said. "Because it means that all taxpayers are the quiet owner."