French banking group Societe Generale has sold its Polish business Euro Bank to Portuguese-owned Bank Millennium for PLN1.8bn (€425.2mn), the two banks announced on November 5.

The deal is in line with speculation that Societe Generale is mulling a reduction of its position in Poland after having failed to achieve the market position it had hoped for. The sale of Euro Bank also improves the capital indicators of Societe Generale, which ranked low in stress tests recently carried out by the European Banking Authority.

The French bank sold its banks in Albania and Bulgaria to Hungary’s OTP Bank in August. 

The sale of Euro Bank is also another step towards a greater consolidation of the Polish banking sector, driven by the state-controlled banks. 

The government favours reducing foreign ownership in the banking sector. Following the takeover of a 33% stake in Poland’s second-largest lender, Pekao SA, by state-controlled insurer PZU and state investment fund PFR, Poland now has a 55% stake in the sector.

Eurobank is only the 17th largest Polish bank, with PLN14bn (€3.3bn) in assets. The country’s persisting low interest rates – the central bank’s rate has been at a record low of 1.5% for over three years now – has led to profitability issues for smaller banks.

The agreed transaction price equals 1.2 of Euro Bank’s book value, said Bank Millennium, which is the seventh largest Polish lender. 

As part of the deal, Societe Generale is providing Bank Millennium with a 10-year guarantee covering 80% of credit and cost of risk of Euro Bank’s FX mortgage loans portfolio and a 20-year indemnity covering losses resulting from litigation, proceedings or changes in law related to the same portfolio.

As a result of the deal, Bank Millennium’s client base will grow 61% to 3.7mn and its network in Poland will be more than doubled, the bank said. 

The transaction is expected to close in the second quarter of 2019.