Assessing Financial Stability
Polish Experience – Supervisory Outlook
Grzegorz Bielicki
Director Off-Site Supervision Department
General Inspectorate of Banking Supervision
National Bank of Poland
International Conference
on Financial Stability and Implications of Basel II
Istanbul 16-18 May 2005
NBP
Overview





Financial system in Poland
 structure of the system
 implications for financial stability
 institutional framework
Assessing financial stability by Polish central bank
 organisational framework
 scope of analysis
 leading indicators
 key reports
Strategic issues
 contingency planning and crisis management
 IAS
 Basel II
 home-host relations
Summary of current situation & main sources of risk
Conclusions
2/61
NBP
Financial system in Poland


Financial system is small by amount of total assets (ca EUR 180 bn)
and as a portion of GDP (ca 80%)
On the other hand number of institutions is relatively significant (57
commercial banks, 596 cooperative banks, 83 credit unions, 68
insurance companies, 15 pension funds, 120 investments funds)
Financial system is heavily bank-orientated however other types of
financial institutions develop strongly since the end of the 1990s.
 Banks assets cover almost 75% of total assets
 Insurance companies are second player in the market
 Pension funds are growing very rapidly, stimulated by the social
security system reform in 1999
 Investment funds stimulated by interest rate cuts (2001-2003)
and the introduction of tax on deposit interest
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NBP
Total assets of financial institutions in Poland
(PLN billion)
600
500
400
538
429
489
467
470
300
200
100
38
1
97
19 12
2
66
58
47
3
32 23
3
78
45
33
4
63
38
0
2000
Banks
Credit Unions
2001
2002
Insurance Companies
2003
Pension Funds
2004
Investment Funds
4/61
NBP
The largest bank is still bigger then total assets of
other financial sector components
(2004, PLN billion)
PKO Bank
Polski
87,7
Insurance
Companies
77,5
62,6
Pension Funds
Investment
Funds
37,7
4,2
Credit Unions
0
20
40
60
80
5/61
NBP
Financial system in Poland (continued)




Due to lack of local capital privatisation of financial sector
dominated by foreign investors (as in other NMS of EU)
Main investors: UniCredito, HypoVereinsbank, Citigroup, ING, Allied
Irish Bank, Commerzbank, KBC, BCP
Few significant players
 PKO Bank Polski (the largest bank in NMS), Pekao, Bank BPH,
PZU (the largest insurance company in NMS), ING BSK
 6 banks among Top 100 banks in Europe by market cap
Medium concentration in banking and high in other segments
 5 largest banks control 50% of total assets (CR10 - 72%)
 PZU controls 45% of insurance market
 2 largest pension funds control 50% of total assets
Satisfactory transparency of the system due to listed 9 of 10
largest banks on the Warsaw Stock Exchange
6/61
NBP
Share of foreign investors
in total banking sector assets in the NMS of EU
(by % of controlled assets)
Estonia
97
Slovakia
96
Czech
96
Lithuania
96
83
Hungary
Poland
68
Malta
68
47
Latvia
36
Slovenia
12
Cyprus
0
Source: ECB
25
50
75
100
7/61
NBP
Geographical distribution of foreign investors
in the Polish banking sector assets
(by % of controlled assets)
18,9
Germany
11,3
Italy
US
8,7
7,9
Netherlands
5,1
4,9
4,0
2,4
2,1
1,2
1,2
Belgium
Irleand
Portugal
France
Austria
Sweden
Others
0
10
20
30
8/61
NBP
Market cap of European commercial banks
(PKO Bank Polski occupies 40-50 position)
HSBC
140
EUR 140.5 bn
PKO Bank Polski
EUR 6.3 bn
Pekao
EUR 5.0 bn
120
100
80
60
40
Bank BPH
EUR 3.3 bn
UniCredito
EUR 28.5 bn
HVB
EUR 14.3 bn
Other
Polish banks
Commerzbank
EUR 9.7 bn
20
0
Source: Bloomberg (May 12, 2005)
9/61
Germany
Italy
Luxembourg
UK
Spain
Ireland
Austria
France
Poland
Hungary
Sweden
Latvia
Czech
Denmark
Greece
Slovenia
Slovakia
Portugal
Finland
Lithuania
Malta
Belgium
Netherlands
Cyprus
Estonia
NBP
CR5 Index in EU
100
20
99
80
83 84
79 81 82 82
60
44 44 44
40
22
27
Source: ECB
88
67 67 67 68
63 66
52 54
50
47
32 33
0
10/61
NBP
Implications for financial stability in Poland
arising from the structure of financial sector




Stability of banking sector is crucial for stability of the whole financial
sector (key role of the banking supervision authorities)
Concentration requires „close look” to key players
Ownership structure requires „close look” on the activity of parent
banks (special role of cooperation with home country supervisors)
Relatively small financial market means that financial crisis in other
emerging markets economies could affect Poland in short term (due
to low liquidity of the market and treatment by foreign investors all
emerging markets as „one piece”)
On the other hand it could be easier to handle crisis (cost of the
crisis in the mid 1990’s was ca 3.5% of GDP)
11/61
6
USA (1988-91)
Poland (1989-91)
Sweden (1996-2000)
Spain (1982-89)
Norway (1991-95)
50
Argentina (1994-97)
60
Indonesia (1981-84)
40
Chile (1981-91)
Korea (1991-94)
20
Japan (1992-94)
13
19
Mexico (1988-91)
12
Brazil (1987-93)
4
11
Czech (1997-2000)
4
10
Finland (1997-2000)
3
Turkey (1981-83)
20
Hungary (1992-2000)
3
Australia (1996-97)
0
1
2
8
France (1989-92)
NBP
Costs of the banking crisis
(as % of GDP)
55
41
27
Source: Honohan, Klingebiel “Controlling the Fiscal Costs of Banking Crises”, World Bank
12/61
NBP
Financial sector - institutional framework
Primary banking
sector regulator
Commission for Banking Supervision (CBS)
Insurance and Pension Funds Commission
National Bank of Poland (NBP)
Monetary Policy Council (MPC)
Banking Guarantee Fund
Ministry of Finance
Securities & Exchange Commission
13/61
NBP
Organisational structure of the central bank
in the context of the assessing financial stability
CBS
Governor of NBP
Chairman of CBS, MPC and NBP
MPC
NBP
General Inspectorate of Banking Supervision – banking sector
• Financial System Department – banking sector and financial system
• Payment System Department - payment and settlement system
• Domestic Operations Department – money market and banking sector liquidity
• Macroeconomic and Structural Analysis Department – monetary policy
• Bureau of Macroeconomic Research - macroeconomic modelling
14/61
NBP
General Inspectorate of Banking Supervision (GINB)
executive arm of CBS
(467 staff)
Commission for Banking Supervision
National Bank of Poland
General Inspector of Banking Supervision
member of CBS
Licensing Division
Supervisory Policy Division
Macro-prudential Unit
14 analysts
Banking System Off-Site Analysis Division
On-site Examination Division
Micro-prudential Units
41 off-site analysts
Co-operative Banking Division
15/61
NBP
General Inspectorate of Banking Supervision
Key functions




Licensing banks, monitoring ownership structure and adequacy of
management
Drafting prudential regulations for banking system (in compliance
with EU standards)
On-site examination
Off-site supervision
 micro-analysis (individual bank)
 macro-analysis (trends, sources of risk, assessment the impact
of monetary policy, tax policy and regulatory activity on the
banking sector situation)
 supervision on consolidated basis
16/61
NBP
Inspections run by GINB in commercial banks
(270 on-site examiners)
number of commercial banks
full scope examination
target examination
80
70
73
69
60
59
50
58
48
57
40
30
22
20
17
25
20
21
19
18
18
10
15
0
2000
2001
2002
2003
2004
Top 10 banks and banks with overall CAEL rating 4 or 5
are subject to full-scope examination every 2 yrs
17/61
NBP
Financial System Department of NBP
(38 staff)
Deputy Governor of NBP
Financial System Department
Financial Stability Unit
Financial Markets Development Unit
Operational Analysis Unit
moved recently to
Domestic Operation Department
Financial Market Analysis Unit
18/61
NBP
Financial System Department of NBP
Key functions

analysing stability of the financial system

analysing development of the financial system

analysing financial markets from the perspective of monetary
policy

developing and operating the system of identification of systemic
threats and developing and coordinating management of crisis
situations by the central bank
19/61
NBP
General Inspectorate of Banking Supervision
vs.
Financial System Department of NBP
in the context of the assessing financial stability
General Inspectorate of Banking Supervision
- main focus on the banking sector
- complex analysis of individual banks
Financial System
Banking Sector
Financial System Department
- main focus on the whole financial system
- complex analysis of the whole system
20/61
NBP
Assessment Financial Stability
The scope of macro-prudential analysis
Macro-economy
Financial institutions
special focus
on banking sector
Foreign
parent banks
monitoring
Financial markets
Assessment
Financial Stability
Institutional & legal
framework
Others
21/61
NBP
Financial stability assessment in Poland
is similar to international standards



Supervision techniques inspired by international experience
 focus on risk approach and in-depth, comprehensive exams in
banks
 in the 1990’s Polish supervisors were trained in the US
Participation in international bodies
Financial Soundness Indicators (FSI) used in Poland are similar to
FSI used by IMF
In 2001 IMF made Financial System Stability Assessment of Poland (FSSAP)
Conclusion:
”The mission concluded that no major immediate issues
in terms of systemic stability were apparent”
22/61
NBP
Key Macro-economy Indicators
Overall Economy Condition










GDP growth and its components
industrial output, construction, retail sales
exports, imports, competitiveness ratios, effective exchange rates
unemployment
CPI, PPI
monetary data
current account balance/GDP, official reserve assets as months of goods and services imports
FDI
public finance sector deficit
country rating
Corporate Sector






earnings, share of corporate with positive earnings
liquidity ratio
debt and loan burden ratio (liabilities or loans / total assets)
financing structure
manufacturing capacity utilisation
corporate sector confidence index
Household Sector




real wages growth
debt burden ratio
financial assets structure
consumer confidence index
23/61
NBP
Key areas of analysis
of non-banking financial institutions and financial markets
Non-banking Financial Institutions




structure, concentration, M&A
earnings
key position in balance sheet
key trends
Financial Markets







money market interest rates
currency exchange rates
banking interest rates
yields on treasury bills & bonds, and corporate commercial papers & bonds
debt and loan burden ratio (liabilities or loans /total assets)
equity market indexes
investment funds
Institutional & Legal Framework



overall structure
barriers of entry
surveys on banks opinions
Others



payment system
key trends in world economy and financial markets (special regard to EU, especially Germany)
assessments of Poland by IMF and other international institutions and rating agencies
24/61
NBP
Key areas of analysis of individual bank
CAMELIFO Approach
Evaluation of statistical models
used by banks
to asses market risks
Capital
Assets
Management
Earnings
Liquidity
Interest Rate Risk
Market position & reputation
Ratings – FITCH, Moody's, S&P
Financial Soundness of Parent Bank
FX Risk
Operational Risk
Supervisory Tools
1/ UBPR
2/ Supervisory Profile
3/ Executive Summary
25/61
NBP
Key areas of analysis of the banking sector
are similar to individual bank analysis
however macro view perspective is applied
Structure of the sector & distribution channels
Balance sheet & off-balance sheet items (structure, key trends)
Earnings (structure, key trends, efficiency)
Liquidity Risk
Credit Risk (FX loans, large exposures, industry risk)
Market Risk (FX risk, IRR, equity price risk, property price risk)
Capital position and loss-absorbing capacity
Unique database
covering significant exposures
(65% of total loans)
Uniform Bank
Performance Report
scenario analysis
VaR techniques
stress testing
distance to default
26/61
NBP
Key Products
Issuer
KNB
Title
Frequency
Publication
Evaluation of the Financial Situation of the
Banking Sector
quarterly
no
Summary Evaluation of the Financial Situation of
the Banking Sector
quarterly
yes
yearly
no
semi-annually
yes
yearly
yes
Senior Loan Officer Opinion Survey
quarterly
yes
Inflation Report
quarterly
yes
yearly
yes
periodically
yes
Impact of the Monetary Policy, Tax Policy and
Regulation Activity on the Banking Sector
Financial
System
Department
RPP
Financial Stability Report
Financial Market in Poland
Report on Monetary Policy Implementation
Other publications and research papers
27/61
NBP
Strategic Issues

Contingency planning & crisis management

IAS implementation

Basel II & CRD

Cross border banking

Outsourcing

Consumer protection
Home-Host issues
28/61
NBP
Contingency planning & crisis management
are necessary for safety of financial system

Prudential supervision, risk analysis and oversight of the payment
system are essential but not sufficient for financial stability

Crisis management and resolutions are absolutely necessary to
create safety net
On country level
 Emergency Liquidity Assistance (ELA) is the main device of
central banks to deal with banking crisis
On EU level
 Memorandum of Understanding on high level principles of cooperation between the banking supervisors and central banks
of the European Union in financial crisis situation (sign in 2003,
Poland entered the MoU in July 2004)
 Memorandum of Understanding on co-operation between the
banking supervisors, central banks and finance ministers of the
European Union in financial crisis situation (to be signed in May
2005)
29/61
NBP
IAS implementation
(in the part adopted by the European Commission)


IAS implementation
 majority IAS aspects already covered in the amendment of
Polish Accounting Act in 2001 and 2004
 banks which control 75% of total banking sector assets will
report under IAS
In short run IAS implementation can deteriorate data
comparability and complicate on-going analysis but in longer run
will have positive impact on assessment of financial stability and
ensure better comparability than historic accounting
First report from one of Top10 bank encouraging (differences
reported are marginal)
30/61
NBP
New Basel Accord
&
Capital Requirements Directive (CRD)


Preparation in Poland – special interdepartmental project team in
the banking supervision
General perception of Basel II and CRD positive, however, some
areas of concern:
 high complexity, which could be a problem for small banks
(especially cooperative banks)
 implementation costs for supervisors and banks
 lower capital requirements for more advanced banks - trade-off:
less capital vs. better risk management
 cross border issues (home-host - relations & responsibilities)
31/61
NBP
New Basel Accord
&
Capital Requirements Directive (CRD)
(continued)


New challenges
 Pillar 1 – introducing new methods for calculation credit risk
capital requirements (STA, FIRB, AIRB), and capital
requirements for operational risk
 Pillar 2 – ICAAP, SREP, economic capital, supervisory measures,
risk not covered by Pillar 1
 Pillar 3 – market discipline, disclosure requirements
 cross border issues (home-host)
Results of QIS 3
 12 banks cover 80% of total banking sector assets
 STA approach more favourable for Polish banks then FIRB
 total capital requirements rose by 10%, while in FIRB by
37%
 CAR dropped by 1.2 in STA and 4.0 in FIRB
Main reasons for differences: conservative approach in FIRB
models and data from the bottom of the business cycle
32/61
NBP
Results of QIS3
Comparison Polish banks with G10, EU & Others
(Group 2 – Tier 1 < EUR 3 bn)
Change in Capital requirements
Standardised approach
G10
EU
Corporate
-1%
-1%
Sovereign
0%
Bank
Retail
SME
Securitised assets
Other
PL
G10
EU
0%
0%
-4%
-5%
-1%
5%
0%
1%
0%
0%
1%
1%
0%
0%
1%
2%
2%
-1%
-1%
1%
3%
-10%
-7%
-4%
-4%
-17%
-18%
-8%
2%
-2%
-2%
-1%
-1%
-4%
-5%
1%
7%
0%
0%
0%
0%
-1%
-1%
1%
0%
-3%
-2%
-2%
0%
3%
5%
5%
8%
-27% -27%
-3%
25%
General provisions
Other portfolios
Overall credit risk
Operational risk
Overall change
IRB Foundation approach
Other
PL
1%
-1%
3%
1%
-11%
-11%
2%
-2%
15%
12%
11%
12%
7%
6%
7%
12%
3%
1%
12%
10%
-19%
-20%
4%
37%
33/61
NBP
Results of QIS3 - STA vs. FIRB
(no bank reported CAR below 8)
Main reasons for differences:
1/ conservative approach in FIRB models
2/ data from the bottom of business cycle
40
37
30
25
20
12
10
0
-2
-10
12
10
-1,2
STA - Standardised approach
Overall credit risk
Overall change in capital requirements
-4,0
FIRB - IRB Foundation approach
Operational risk
Change in CAR
34/61
NBP
Pillar 2
Internal Capital Adequacy Assessment Process (ICAAP)
and
Supervisory Review Evaluation Process (SREP)



Key objectives:
 create incentive for banks to develop modern risk control, risk
management systems, and capital planning processes
 align better supervisory assessment and bank internal capital
process
ICAAP – internal bank process: setting up internal (economic) capital
against its risks and for other purposes (e.g. better rating)
Main challenges now:
 ICAAP in small institutions. Problem with assessment of economic
capital in simple institutions
 Non-easily quantifiable risks – pro-cyclicality and reputation risks
 Comparability, level playing field in SREP

Supervisors role as regards Pillar II: to challenge banks` ICAAP in
context of Pillar I and II risks

Corporate governance part of the Pillar II assessment
35/61
NBP
Home – Host supervisory relations
more important under Basle II
Perhaps time to revise Basle Concordat of 1983
to reflect in more balanced way recent trends
in emerging markets and information flow Home to Host







Last 15 yrs – dynamic expansion of multinational banks into other
countries
Need to coordinate better supervisory efforts
In many non-G10 countries due to privatisation of major local banks international banks control local, systemically important banks (SIB)
Due to Basle II – many processes of implementation coordinated and
developed at group level
The more delegation of Basle II work to consolidated (Home
supervisor) – the more coordination needed and more information
flow from Home to Host
But also input needed from Host to Host to capture local risks (local
models, local data)
Need to re-balance international standards of supervisory cooperation
to reflect better needs of Host supervisors regarding their SIBs
36/61
NBP
Crucial role of local supervisor and central bank
as well as
compliance and corporate governance on local level
for country’s financial stability
Many subsidiaries and branches
of foreign banks
play systemically important role
on local market




No clear evidence
of
cross-border banking group failure
No international schemes for sharing of budgetary (fiscal) costs of
cross-border banking group failure, especially in case of systemic
bank crisis
No supranational liquidity supplier
No international deposit insurance
No legal liability of parent for deposits of subsidiary (only “moral
responsibility”) and no explicit liquidity support
but
 Responsibility of local deposit insurance agency
 Only local ELA potentially available
 Expectation of local government intervention in case of SIB crisis
37/61
NBP
Subsidiaries of foreign financial group
play significant role in Polish banking sector
although they are a fraction of parent balance sheet
Share of foreign owned subsidiary in Polish banking sector
Share of subsidiary in parent institution assets
11,2
10,0
10
6,4
5
6,3
5,6
5,5
2,8
1,0
0,8
Bank Slaski ING
Handlowy Citigroup
0
Pekao Unicredito
BPH - HVB
1,7
BRE Commerzbank
38/61
NBP
Total assets of Polish banking sector
are lower then
total assets of parent institution
Share of Polish banking sector in parent institution assets
50
49,6
40
30
31,0
28,2
20
15,2
10
12,1
0
Ploand vs.
Unicredito
Poland vs.
HVB
Poland vs.
ING
Poland vs.
Poland vs.
Citigroup Commerzbank
39/61
NBP
Subsidiaries of foreign financial groups
play systemic role
in NMS and some old EU members
60
56
subsidiary 1
51
subsidiary 2
subsidiary 3
40
32
14
16
18
Austria
15
14
Portugal
20
Latvia
23
21
Malta
22
18
Denmark
Lithuania
Source: ECB
Finland
Estonia
0
20
Czech
20
24
Slovakia
28
26
40/61
NBP
Overview of key trends
in Polish economy & financial markets 2004




GDP grew by 5.3% driven by EU accession, exports (30.3% in PLN),
individual consumption (3.2%) and investments (5.1%)
Industrial output rose by 12.3% and connected with CIT reduction (from
28% to 19%) push corporate profits to record high
FDI flow continue
CPI rose by 4.4% (now declining) and caused tightening in monetary
policy by 125 bps (in 2005 lose by 50 bps) – monetary target 2.5% (+/1%)

PLN appreciation (13.5% against EUR, 20.1% against USD)

Recovery on the bond market (10YTB – 5.8%)

Solid returns on the equity market (WIG rose by 26.9%)

Consumer confidence index improved after EU accession

Expectation for upgrade to A- by S&P in the next 12-months
41/61
NBP
After 2001-2002 slowdown
economy recovered and get a momentum
(growth rates & unemployment rate)
30
30,2
26,7
24,9
20
20,0
19,4
15,1
10
4,0
0
2000
GDP
13,0
1,0 0,6
2001
Exports PLN
19,1
12,3
8,3
7,4
6,7
20,0
1,4 1,1
2002
Industrial output
5,4
3,8
2003
Real wages
2004
Unemploment rate
42/61
NBP
FDI flows continue
Cumulated FDI (over 1 mn) since 1993 amounted USD 80.6 bn
It is expected that in 2006 FDI should exceed USD 10 bn
French 19.9%
Netherlands 13.8%
US 12.6%
German 12.6%
10
Financial sector 23.4%
10,6
9,6
7,9
5,2
5
2,8
1,5
7,1
5,7
7,9
6,1
6,4
2,5
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
43/61
NBP
Corporate, banking & insurance companies
profits reached record levels
60,7
86,0
75
70,6
64,2
63,5
61,6
30
50
18,0
10
6,2
4,2
2000
-10
4,2
0,5
-2,6
2001
2,3
1,1
-2,0
2002
25
7,3
1,5
2,3
2003
3,0
2,0
2004
% of corporate with positive earnings
50
bn PLN
100
Corporate earnings
Banking earnings
Insurance companies earnings
% of corporate with positive earnings
0
44/61
NBP
Interest rates continue to drop in the long term
CPI
NBP reference rate
25
overall zloty deposits
overall zloty loans
corporate loans
20
households loans
15
10
5
0
12.99
12.00
12.01
12.02
12.03
12.04
45/61
NBP
After sell-off in mid 2003 - mid 2004 period
bond market rebounded and yields go to EU levels
(yields 10 Treasury bonds)
Poland
Czech
Hungary
Germany
US
15
10
5
0
12.99
12.00
Source: Bloomberg
12.01
12.02
12.03
12.04
46/61
NBP
PLN exchange rates against major currencies
are stable in the long term
5,0
EUR
USD
CHF
4,5
4,0
3,5
3,0
2,5
2,0
12.99
12.00
12.01
12.02
12.03
12.04
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NBP
Equity markets in Eastern Europe
outperform markets in matured economies since 2002
(banking stocks form 45% of total market cap)
Return on equities %
50
44,9
37,1
30
26,4
10
-1,3
27,9
7,3
3,2
-7,5
-10
-10,1
-22,0
-13,0
9,0
-23,4
-19,8
-30
-43,9
-50
2000
2001
WIG
BUX
2002
DAX
2003
FTSE100
2004
S&P500
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NBP
General trends in the Polish Banking Sector




Ownership structure dominated by foreign financial groups,
consolidation stopped (depends on foreign banks decisions)
After poor period profits jump to record highs, efficiency ratios on
average EU levels
Retail banking main driver of banking income and main area of
banking competition (especially mortgage loans), while corporate
loans shrunk
Credit risk remain main source of risk, FX risk and other market
risks are relatively low

Strong improvement in loan portfolio quality

Difficulties in raising deposits from households
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NBP
Corporates reduce loans and increase deposits
on opposite
households reduce deposit and increase lending's
(loans & deposits growth rates)
60
housholds loans
housholds deposits
50
corporate loans
corporate deposits
40
30
20
10
0
12.99
12.00
12.01
12.02
12.03
12.04
-10
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NBP
Credit risk remains main source of risk
(allocation of capital requirements per type of risk %)
100
93,5
75
50
25
4,4
2,1
Market Risk
Others
0
Credit Risk
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NBP
Efficiency and safety is comparable with EU
however
further improvement in cost control is necessary
4
100
3,3
3
NIM
75
2
1,4
C/I
25
0
0
20
17,6
15
15
ROE
10
60,4
50
1
20
66,6
9,9
CAR
12,4
10
5
5
0
0
Poland (data for 2004)
15,6
EU 15 (data for 2003)
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NBP
Positive outlook for the banking sector
is confirmed by improvements in overall CAEL rating
(share of banks with given CAEL rating in total assets)
100
80
75,0
60
54,9
52,6
44,4
40
28,1
20
0
30,5
38,5
22,8
24,0
18,7
0,6
2000
Global rating 1
80,7
1,1
2001
Global rating 2
6,2
0,4
2002
Global rating 3
18,9
0,3 0,1
2,1 0,1
2003
Global rating 4
2004
Global rating 5
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NBP
Main source of risks




Efficiency of legal framework
Economy
 public sector deficit and budget spending
 unemployment and low working activity
Banking sector
 lending to households (FX and property loans)
 short term deposits vs. longer term assets
 non-parallel trend in convergence of Poland to EU – lowering interest
rates and NIM but business volumes remain relatively low
Political risk
 cap on interest rates (usury)
 consumer bankruptcy
 2005 President and Parliament election
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NBP
Efficiency of legal framework
(average debtors work-out period, days)
1000
1000
Legal system requires
immediate reform
800
565
600
400
200
300
48
112
189
Netherlands
Japan
France
Denmark
Belgium
Estonia
Greece
Lithuania
Spain
Germany
Latvia
Sweden
Ireland
Finland
China
USA
UK
Czech
Portugal
Russia
Canada
Hungary
Austria
Slovakia
Poland
Slovenia
0
Source: Doing Business in 2005: Removing Obstacles to Growth, World Bank
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NBP
Public spending is high comparing to system leaders
(public spending as % of GDP)
Cuts in public spending
are necessary
48,4
44,6
40
35,2
35,9
31,4
29,1
20
0
Korea
Ireland
Source: OECD, data for 2002
USA
Lithuania
Hungary
Poland
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NBP
Public sector debt could be a danger
(public sector debt as % of GDP)
Further fiscal reforms
are necessary
60
50,1
45,1
40
39,1
40,3
36,6
48,9
39,7
20
0
1998
1999
2000
2001
2002
2003
2004
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NBP
Working activity is dramatic low
(employment as % of population between 15-64)
Labour market & social spending
reform is necessary
60
51
75
72 73 74
72
67 68 69 69
65
65
65
61 61 62 63 63 63
60
60
56 57 58 58
30
Poland
Italy
Hungary
Slovakia
Greece
Belgium
Spain
Luxembourg
Lithuania
Latvia
Slovenia
France
Estonia
Czech
Germany
Ireland
Portugal
Finland
Austria
Cyprus
United
USA
Sweden
Netherlands
Denmark
0
Source: Employment in Europe, European Commission, 2003
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NBP
Fast growth of loans to households, especially
mortgage FX loans pose long term risk
(% structure of loan portfolio 1997-2004)
Corporate loans
Households loans
mortgage loans to households
FX mortgage loans to households
67,9
60
51,4
48,3
40
31,8
20
15,8
1,9
0
1997
8,9
0,1
2004
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NBP
Conclusions




Positive outlook in short term, however, public finance may
pose danger
Contingency planning and crisis management on country and
international level are necessary for safety net
IAS implementation & Basel II should have positive impact
on assessment of financial stability in long run
Cross-border banking and Basel II/CRD warrant redefinition
of international arrangements (home-host relations &
responsibilities)
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NBP
THANK YOU
FOR YOUR ATTENTION
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