The outlook remains negative for Poland's (A2 stable) banking system over the next 12 to 18 months, because the negative implications for investors of a pending resolution and bail-in regime outweigh the healthy financial fundamentals of the country’s, Moody's Investors Service said in its latest report.
"The recent adoption of the Bank Recovery and Resolution Directive in the EU is the main force behind the pending Polish resolution and bail-in regime, aiming to shift the cost of bank failure from taxpayers to shareholders and unsecured creditors,” said said Simone Zampa, author of the report.
“Ultimately, because of these regulatory developments, our government support assumptions for Polish banks will likely decline during the outlook period, evidenced by the negative outlooks on the long-term deposit and debt ratings of most rated Polish banks," he said.
"Despite the likely decline in support assumptions, and the associated increased risk of downward ratings movement, we believe that the Polish banking system will continue to report good profitability with a return on assets above 1% and a gradually improving problem loans ratio towards 7%," Zampa added. "We see some pressure on profitability, however, if the central bank eases interest rates during the outlook period following the recent signs of economic deceleration."
Moody's said capital buffers will remain solid with an average common equity Tier 1 ratio above 13%, but the relative strength of individual banks' capital will depend on the level of dividends that the banks pay as they continue to expand their loan portfolios.
Banks benefit from a large domestic customer base with retail and corporate deposits providing almost two-thirds of total financing, and are increasingly using local capital markets to grow their loan book and improve asset-liability maturity mismatches.
On the downside, the still sizeable mortgage loan book in foreign currency continues to carry some credit risk. This also forces some banks to rely on their foreign parent banks and/or derivative markets for funding.
