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Banco Santander has finally agreed a deal to take control of Poland's Kredyt Bank after months of speculation. Taking the form of a share swap with Kredyt owner Belgium's KBC Group, the non-cash nature of the transaction appears to confirm that even in one of Europe's most attractive markets, banks face a challenge to offload assets even when the need is pressing. At the same time, the deal makes more sales likely, as it piles pressure on smaller Polish banks.

Under the terms of the deal, Santander's Polish unit Bank Zachodni WBK merge with Kredyt through a €700m share exchange, creating a new number three player on the Polish market measured by deposits, loans, branches and profit. The merged bank, with a pro-forma value of €5bn, will have 3.5m retail customers and almost 900 branches.

The deal is based on an exchange ratio of 6.96 newly issued Bank Zachodni shares for every 100 Kredyt shares, valuing Kredyt at about PLN4.3bn (€1.04bn). Santander will hold 76.5% of the merged bank, with KBC holding 16.4%, and a final 7.1% held by other minorities. Santander said it has committed to buy a further 5% as it helps KBC reduce its stake to below 10%, reports Bloomberg.

Kredyt is Santander's second Polish asset picked up from distressed sellers, after it's late entry to the Polish market in March 2011 with its purchase of Zachodni from Allied Irish Bank, as the latter disposed of assets following a huge bailout and nationalisation in 2009.

Under similar pressure, Belgium's KBC put its Polish unit on the market months ago, and Santander was always the apparent suitor, according to reports. However, an agreement has proved elusive, with the Spanish bank struggling to find the capital to fund a purchase at a time when it needs to raise its Tier 1 capital to satisfy new EU regulations by the end of June. Santander announced that the impact of the eventual deal on its core capital ratios will be less than 5 basis points.

Those difficulties have seen Santander linked with a number of potential partners for the deal, according to reports over the last few months, but that also proved a tricky route. In the end, Santander has taken on the seller as a temporary sidekick. However, it's unclear whom the Spanish might find sharing its Polish bed in the future, with KBC announcing it intends to offload its share in the newly merged unit.

However, despite the Polish market offering some of the brightest prospects in Europe right now - relatively robust growth and significant space for development - it appears that those that are forced to withdraw will still face a challenge to find buyers. KBC still has to do that, although the profile of any potential suitor will clearly have changed now that it holds a minority stake. "Taking the decision to divest Kredyt Bank and to leave the Polish banking market was a very difficult one, but difficult times have forced us to make difficult choices," Jan Vanhevel, chief executive of KBC, said.

Analysts have given the deal the thumbs-up, suggesting Santander has done well to secure a route to expand its presence in the promising Polish market without shelling out precious capital. The bank says it aims to deliver annual growth of 15-20% at the merged bank and through PLN322m in efficiency savings is targeting profit of PLN3.1bn by 2015. "It looks like a very good and smart transaction for Santander, a non-cash transaction that allows them to maximize scale and synergies in Poland," said Andrea Filtri of Mediobanca, reports Bloomberg.

Emilio Botin, Santander's executive chairman, said: "Banco Santander will significantly strengthen its presence in Poland, one of the most dynamic economies in Europe, obtaining the critical mass we seek in our core markets." In other words, it's a significant consolidation of the sector, which will add to the pressure on smaller Polish banks. The country may be something of a beacon in Europe right now, but the banking sector is still facing the same pressures as others.

Therefore, the torturous road to the final deal by one of Europe's healthiest banking groups may worry Portugal's BCP, which is thought to be back sounding out potential purchasers for its Polish unit Millennium. Whilst Russia's state-controlled giants Sberbank and VTB are both interested in the Polish market, a sale to Moscow would face huge political resistance in Warsaw.

Indeed, the Polish financial markets regulator is already flexing its muscles over Santander's promotion to control Poland's third largest banking group. "Due to the size of the bank after this potential merger," the Financial Supervisory Commission said in a statement, "we will use the functioning of the UniCredit Group, the majority shareholder of Bank Pekao SA, as a benchmark for evaluating the transaction and investment commitments [of Bank Zachodni]." After protracted negotiations with the regulator to win approval for the acquisition, Unicredit reached a deal which included an agreement to maintain a free float of 25% in Pekao, avoid mass layoffs for two years, and shed some assets.