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Spanish banking giant Santander officially announced its interest in buying Polish lender BGZ to add it to local unit Bank Zachodni WBK (BZWBK) on October 24. However, while the country's biggest banks continue to line up in a race for acquisitions, the regulator has reiterated it's unlikely to approve further consolidation in the sector.

"We're looking at BGZ but I deny that we have any interest in Commerzbank," Santander CEO Javier Marin told a news conference, according to Reuters, referring to speculation that Commerzbank's local unit BRE Bank could also be up for grabs, which the German bank has denied.

Owned by Dutch Rabobank, agricultural lender BGZ is reportedly top of the list of Polish banking assets anticipated to be ready for a sale as problems at various Eurozone groups continue to force divestments.

Kicked off by the purchase of Nordea's Polish assets by state-controlled giant PKO BP earlier this year, speculation has grown about a coming wave of further consolidation in the banking sector by PKO's rivals. A statement from Rabobank in early summer saying it was considering its options on BGZ catapulted the bank to the top of the list of likely targets.

UniCredit Group said in September that it has now submitted a bid for BGZ, which is Poland's eleventh-largest lender. "We want to grow in Poland, which is a core country for us," CEO Federico Ghizzoni said on October 3. "We made an offer for BGZ; we are at a preliminary phase," he said. The non-binding offer was made through UniCredit's Polish unit, Bank Pekao, which is Poland's second-largest lender.

Santander, which reported a surge in profit but a sharp fall in net lending income on October 24, led the last round of consolidation in Poland in 2011-12. Its purchases of Bank Zachodni WBK and Kredyt Bank - from Allied Irish and KBC respectively - book-ended a set of acquisitions driven by appetite to grab a slice of a market that appeared to be resisting the crisis at the time. Interest has remained high despite the sharp economic slowdown seen in the meantime; Erste Bank Group's CEO, Hans Treichl, said in the summer that valuations are too rich for his blood.

Early this year, the Spanish giant merged its two assets to create Poland's third largest bank, BZWBK. Local executives at the bank have regularly expressed an interest in finding acquisition targets in recent months. BNP Paribas is also reported to be in the running for BGZ, has put in the best offer, and has begun the due-diligence phase, Puls Biznesu reported in early October, quoting unnamed sources. Other potential bidders mentioned throughout the summer include ING and Getin. Speculation in August was that UniCredit was ready to make a "low" offer.

However, all these plans to expand market share through acquisitions disregard the stance of the Polish bank regulator, which has made it clear that it opposes further consolidation. The deputy head of the KNF reiterated that opninion in an interview published by Reuters on October 22. Wojciech Kwasniak insisted the watchdog will ensure Polish banks maintain financial strength, and that it intends to keep the sector more fragmented than elsewhere in Europe in order to prevent to prevent a buildup of risk.

The regulator has followed a strict regime over the last few years, setting strong demands when approving M&A deals and restricting dividend payouts in a bid to limit outflows of capital from Polish units to Eurozone parent banks. The official claimed such action helped prevent the need for any bailouts through the crisis.

Pressure from the KNF forced Alior Bank - a recent start-up which held a successful IPO earlier this year - to change the way it accounted for revenue from its insurance business. The bank, which analysts say needs to find a strategic investor soon, warned the move will hit third-quarter results. Kwasniak said there is interest from buyers in a controlling stake in Alior, but claimed the issue of a change of ownership at BGZ has not yet arisen.