The outlook for Poland's banking system has been raised from ‘negative’ to ‘stable’ by Moody's Investors Service on the expectation of a recovery in economic growth and consequent stabilisation in bank profitability.
The rating agency said that stable outlook also reflects the banks' improved capitalisation, increased risk-absorption capacity and largely self-sufficient funding profiles, which make the system resilient to the persistently challenging conditions in international wholesale markets.
Moody's believes this recovery in growth will translate into a stable operating condition for banks, with improved demand for credit and other banking products, both of which will support core profitability. After relatively weak GDP growth during 2013, which Moody's estimates will not exceed 1.4%, stronger growth of around 2.5% is likely in 2014.
Consequently, Moody's expects a recovery in interest income, the Polish banks' main revenue source. In the recovering economic environment, Polish banks are better able to gradually re-price their liabilities and improve NIMs, towards levels comparable to other regional peers, the rating agency said.
In the first half of 2013 the Polish system has further improved its leverage and capital adequacy ratios, prompted by the Polish Banking Supervisor (KNF)'s recommendations on profit retention.
Moody's believes that during the outlook horizon, Polish banks' capital resources will
remain solid, mainly driven by internal capital creation, with an aggregate capital adequacy ratio expected to rise 1 to 2 percentage points above the ratio of 14.7% registered as at end-2012. The system's resiliency is also boosted by granular funding sources featuring a domestic deposit customer base with limited reliance on wholesale markets.
Corporate and retail deposits continue to account for a significant portion of total funding with a number of foreign-owned banks relying on medium-term FX loans from their parents. While Moody's expects that parental funding will be scaled-down, this process is likely to be gradual, similar to the trends seen in the past two years.
However, the rating agency added that the current negative pressures on asset quality will continue, at least during the initial period of the outlook horizon, with the non-performing asset quality ratio moving up slightly and nearing the 10% mark on a system-wide basis.
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