Central bank warns over Polish banking sector profitability

By bne IntelliNews July 11, 2012

Tim Gosling in Prague -

The National Bank of Poland (NBP) issued a stark warning to investors in the country's banks on July 10, forecasting that, despite Polish banks remaining stable and resilient, net profit for the sector could be set to plummet 30% by 2014 should the Eurozone crisis worsen - and that some may even need recapitalisation.

Just a day after announcing increased worries over the economy's growth prospects, the NBP said in its biannual financial stability report that under its base case scenario, average net profit in the banking sector will fall to PLN10.3bn (€2.46bn) by the end of 2014, mainly due to a sharp rise in bad loan provisions and reduced revenue from lending. That is at odds with earlier optimism for the sector, which kicked off 2012 by beating the record profits seen in 2011 in the early months.

The report supports the basic case that the Polish banking sector is stable and should prove resilient to the crisis in Europe: "The ability of banks to absorb any potential losses remains high and the financial system is stable." However, it also warned that tough times are ahead, and that banks should reduce risk to ensure they can withstand any external shocks. It added that some may require fresh capital if the crisis deepens.

"Nevertheless, the economic outlook over the forecast period has deteriorated and uncertainty as to the development of the economic situation abroad is high," the report warns, outlining a series of suggestions. In particular, the banks should distribute dividends cautiously - a process already being strictly overseen by the financial regulator as the country guards against foreign parent banks searching for extra capital - as well as diversifying funding sources and reducing risk related to mortgage loans with a high loan/value ratio.

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