Factual assumptions

The banking sector’s assets in 2010 accounted for nearly 82% of GDP, in 2020. – 100.5% while as of March 2024 their share reached about 88.5%. The Polish banking sector in the last 5 years is in a phase of contraction in relation to the developing economy. This limits is ability to finance the economy.
Shareholders’ equity in relation to GDP has declined from 10.2% in 2017 to 7.6% as of the end of March 2024.
The performance of banks, although nominally reaching historic highs in 2023, in relation to GDP (0.72%) is clearly lower than in 2010-2016. Also, the return on equity (ROE) is clearly lower than the cost of capital (11% versus 12.5%).
After 2015, a number of systemic conditions accumulated that significantly impeded further transformation and development of banking:
o Claims by customers with foreign currency home loans escalated – which, in the absence of a systemic solution to foreign currency home loans, led to legal disputes on an unprecedented scale. The result of these disputes has been:
– Questioning the existing legal order in the relationship between customers and banks – questioning the stability of contracts and the order of parties’ liability;
– Challenging the banking practice in place and undermining the role of banks as institutions of public trust – including in calculating exchange rates, charging fees, calculating loan installments. Et cetera;
– Creating unanticipated costs on a scale of up to 40% of equity;
Poland’s banking sector is heavily burdened by taxes and para-taxes imposed by the state and state institutions:
o Since 2015, tax and par-tax burdens have become comparable to the financial performance of banks
o The total external burden (excluding CIT) in 2015-2023 exceeded PLN 126 billion
The total taxes and para-taxes, as well as regulatory and legal burdens, raise the SOFIP rate (the rate of fiscal and para-fiscal burdens) to 64-67%. Such high burdens on the banking sector significantly affect the operation of banks.
All these negative factors have caused:
o Stunting and even declining financial performance of banks;
o A reduction in the profitability of banks;
o A slowdown in real capital growth;
o A slowdown in lending and even a decline in lending in terms of the loan-to-GDP ratio;
Loans to the non-financial sector as a share of GDP decreased from 49.7% in 2016 to 32.42% in 2024 (the Eurozone average is 87% of GDP).
Loans to businesses in Poland account for only 11.96% of GDP compared to the eurozone average of 37.8% of GDP.
The reduction in the real value of loans in relation to the needs of the economy is related, among other things, to the introduction of the bank tax and basing it on assets (with some inclusions, such as Treasury bonds).
There is a marginalization of the role of banks in financing the economy through the transfer of funds to the economy directly by the State and its agencies;
In order to support investment in the Polish economy, it is necessary to ensure an annual credit growth of 220-230 billion zlotys, which requires an annual increase in equity of 40-45 billion zlotys (which is nearly 2 times the PE achieved in 2023).
The banking sector is well capitalized and secure as of today. However, this is mainly due to the very low level of RWA, which is the result of very weak lending. Increasing the supply of credit – to shore up loan portfolios and increase funding for the needs of a growing economy – will require a significant increase in capital, which in turn requires an increase in net income in future years.
In many respects, the real position of the banking sector is much worse than it was 10 years ago:
o This is especially true when comparing balance sheet size to GDP and the position of Polish banks against EU sectors;
o Without significant changes, banks will not be able to return to a path of rapid growth;
The financing of Poland’s energy transition alone is a gigantic cost – in order to maintain investments in clean energy at the world average level, Poland should spend PLN 275 billion by 2029. If we take into account Poland’s transformation backwardness, assuming a 1% share of global spending in clean energy by 2029. – the amount rises to about PLN 400 billion. In addition, the costs of the energy transition must take into account the erection of at least 1 nuclear power plant – a cost of about 300 billion zlotys; and the necessary modernization of the grid – about 150 billion.
In summary, only in the perspective of the next 5 years, the estimated cost of Poland’s energy modernization is about PLN 850 billion. Looking ahead to 2040, the estimate is nearly double, reaching PLN 1.6 trillion.
Issues for discussion

The unspecified role that the banking sector should play in the economy.
Lack of answers to the question of how the banking sector should develop – whether growth should be on an organic basis or through the stock market and investors:
a. What role the banking sector should play in financing the economy;
b. What capital the banking sector ultimately needs and how it should be built up.
How to dynamize the level of investment in the economy and increase lending to business entities:
a. What areas require increased investment? What should be invested in in Poland, what should be improved?
b. What are the required capital expenditures and with what to finance these investments?
c. Why are Polish companies reluctant to undertake investment activities?
How to stimulate investment activity of enterprises in Poland?
d. What are the biggest constraints banks face in financing investments?
Important problems to be solved:
a. The question of the burden on the banking sector;
b. A number of legal issues:
i. Pressure to privilege customer interests in bank-customer relationships;
ii. Interference in the legal relationship between customers and banks in violation of canons and good practices, undermining the foundations of the relationship between the parties;
iii. Disregarding costs in the absence of awareness that preferring selected groups of customers transfers costs and restrictions to other groups of customers – examples include disputes over foreign currency home loans, or shifting full responsibility to banks for authorizing electronic transactions;
c. Interference by government institutions in the operation of the banking sector.
Brakes on the growth and development of the banking sector:
a. Uncertainty in the achievement of banks’ PE and profitability:
i. Falling interest rates will translate into lower bank earnings;
ii. In the absence of a reduction in tax and para-tax burdens, a return to low profitability is possible;
b. In terms of capital:
i. A major impediment to the development of banks’ capitals is the high tax and par-tax burden and the cost of legal risk;
ii. Capital growth rate that is too low in relation to needs, resulting in the inability to rebuild the real value of equity (in relation to GDP), or even in its decline.
iii. Limited opportunities for organic capital growth;
iv. Weak investor interest – the rate of return on capital chronically remains below the cost of capital
c. CHF problems and regulatory uncertainty:
i. Unresolved CHF problem – lack of stability and predictability, and in the absence of a systemic solution, the costs are borne by society as a whole;
ii. New regulatory requirements and statutory changes to the terms and conditions of previously concluded contracts (e.g., credit vacations) may cause unexpected costs for banks;
iii. The process of converting WIBOR to a new benchmark index continues (albeit postponed).
d. Barriers and inhibitors to credit growth:
i. Performance with declining interest rates (further inhibited by charges) and limited capacity to increase capital will significantly affect lending volumes;
ii. New loan sales in the banking sector are already well below the sector’s potential;
iii. Credit action is progressing more slowly than the growth of the economy – the value of new loan sales of the banking sector in relation to GDP is steadily declining (from 16.0% in 2016 to 10.8% in 2023);
iv. The sector’s ability to finance the economy in the future is characterized by high unpredictability;
v. NBP scenarios indicate the risk of a further decline in the loan-to-GDP ratio;
vi. Through regulatory burdens, the sector has become too small to finance large investment projects – even in a syndicated arrangement;
vii. The risk of not ensuring credit supply at an adequate level, with negative effects on economic growth, is real
e. Growth drivers for the banking sector:
i. Demand factors:
1. demand for business loans in connection with the modernization of the economy and energy transition (NER). The use of funds from the National Reconstruction Plan (NERP) for public investment and support for infrastructure projects will increase demand for credit, boost employment, and improve the financial situation of households;
2. increase credit opportunities for the purchase of new housing – the effect of falling interest rates and lowering the cost of servicing housing loans;
ii. Changes in tax legislation and the burden on banks – replacing the bank tax in its current formula with a tax based on PE (analogous to CIT);
iii. Increased regulatory transparency and predictability of future costs;
iv. Abandoning ad hoc measures in favor of systemic solutions – such as the CIF (in terms of supporting borrowers);
v. A systemic solution to the CHF problem – the biggest problem for banks and for the economy as a whole is the long-term strain on reserves and the reduction of the bottom line on a scale never before seen in the banking sector. The total scale could reach 100 billion zlotys, and it will be a drawn-out process. This excludes many banks from the path of normal capital building, which translates into about PLN 500 billion in uncommitted loans.