RBI to revive sale of Polish unit after election

By bne IntelliNews October 21, 2015

bne IntelliNews -

Raiffeisen Bank International (RBI) will restart efforts to sell its Polish unit following the election on October 25, the Austrian lender's CEO says.

The move signals that the Polish banking sector hopes the election - whichever way it goes - will end the uncertainty that has haunted lenders this year. The long-delayed threat of a big hit on banks' Swiss franc loan portfolios has made valuations all but impossible, scuppering M&A in the sector.

RBI put its bid to sell Raiffeisen Polbank on hold in July, citing such risk. However, Karl Sevelda said at a press conference late on October 20 that the bank will strip out Polbank's €3.2bn worth of Swiss franc loans and hold them on the parent’s books.

That will leave Polbank with total assets of €10bn, according to Erste Bank analysts. The Polish unit should then be sold by end of 2016 or early 2017 at the latest, the CEO suggested. Afterwards, 15-25% of Polbank is supposed to be floated on the Warsaw Stock Exchange - a committment taken on by RBI when it bought the unit in 2012.

Polbank is amongst the most exposed in Poland to to forex loans risk. Installments on Swiss franc-denominated mortgages shot up following the Swiss central bank’s decision to remove the cap on the CHF to the euro in January. 

The pressure has built through the year, but despite seeing painful hits in other markets such as Hungary and Croatia, the banks held out against urging from the centre-right Civic Platform (PO) government and the central bank to come up with solutions to help borrowers.

That has left the sector exposed through the second half of the year, as the approaching election has piled the pressure on politicans. GE Capital reportedly offered to carve out the forex loans at BPH in the summer as part of its bid to offload its local unit, but failed to agree a price with the last remaining bidder, state-controlled insurer PZU, earlier this month.

The populist Law and Justice (PiS) has a healthy lead in the polls, and has said it plans to impose a special tax on the banks, and force them into a conversion of forex loans at historical rates. Estimates put the costs to lenders at PLN30bn (€7bn) or more. 

Still, for the likes of RBI and GE - both of which are keen to offload their Polish units as they look to rationalise their businesses - even that would offer the clarity needed to agree on a valuation with suitors. Meanwhile, PiS is thought to be increasingly unlikely to push through any solution that would risk banking stability. 

There appears growing conscensus - or at least hope - that the populist party will act more moderately than it has suggested during campaigning should it take power following the vote. 

"My post-election policy view [is] most big ticket economic policy ideas will not be implemented, and the rest will be watered down," suggests PKO's Chief Economist Radolslaw Bodys. "The retirement age is unlikely to be reduced and the mega child benefit hike is unlikely to happen, but the banking and retail taxes are likely to ‎be implemented." 

A forex conversion scheme is unlikely, he adds. The current government's proposal is "unconstitutional, and there is a much better scheme discussed: : unemployment benefits for borrowers," he tells bne IntelliNews.

Meanwhile, exposed Polish lenders are likely to receive individual recommendations concerning extra capital buffers from financial regulator KNF in the coming days. Local media suggest the crafted "advice" could even be issued to lenders by October 23, i.e. ahead of the election.  

“This is already priced in," Erste analysts note. "The original scenario, i.e. imposing a higher risk weight for CHF portfolios, is not likely to materialize. The most probable scenario now is that each bank will get their individual requirements, which will be higher than the current binding ones." 

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