Tim Gosling in Prague -

Battling a regulator that's dubious about more consolidation in the banking sector, French bank BNP Paribas on April 7 sold 5m new shares to raise the free float of its Polish unit.

The bank raised PLN228.5m (€55m) via the share issue, reports Reuters. The unit, previously 99.89% owned by its French parent, issued the shares to meet the regulator KNF's requirement that it raise its free float to 15%.

The move follows a deal agreed by BNP in December to buy Poland's Bank BGZ from Dutch lender Rabobank for around €1bn. KNF has said it will not give a decision on approval of the acquisition before August.

The regulator, whose strict patrolling of the sector has only been boosted by the robust performance of the banks through the crisis, has spent months voicing its opposition to further consolidation of the sector. It insisted in the summer that it would be unwilling to give any new major deal the green light.

Speculation over a wave of consolidation in the Polish banking sector was kicked off in early summer by the purchase of Nordea's Polish assets by PKO Bank Polski, with rivals to the country's biggest bank said to be seeking targets in a bid to keep pace. The state-controlled giant PKO was forced to delay the deadline on the closure of the deal several times as it awaited the nod from KNF. Nordea finally announced on April 1 that it has now divested the assets.

According to Reuters, while the regulator has not explicitly linked the diversification of BNP to approval for the BGZ deal, the French bank is wary of keeping it on side. KNF has said it wants to see all banks with foreign parents with a minimum free float of 15%. Not only does that reduce the risk of potential bank devleveraging - the channel of contagion of the Eurozone crisis most feared over the past couple of years in Central and Eastern Europe - but it also serves to boost the Warsaw Stock Exchange.

KNF said in December that it would look into Rabobank's reasons for selling BGZ, which is Poland's 11th largest bank. A BNP adviser said at the time that the bank had already started talks with the regulator. "We're confident it will not take long," he added.