Poland's Banks Contribute to Deposit-Guarantee Fund After Lender's Failure

By Martin M. Sobczyk

WARSAW--The failure of a small Polish lender this week, the first bankruptcy in the local banking sector in 15 years, has forced the country's largest banks to pay the equivalent of hundreds of millions of U.S. dollars into a state deposit-guarantee fund.

The country's financial market regulator on Monday filed for the bankruptcy of SK Bank, one of Poland's smallest lenders with about 3.5 billion zlotys ($874 million) in assets.

Poland's largest bank, state-controlled PKO Bank Polski S.A. (PKO.WA) with 251 billion zlotys in assets, said it would pay the equivalent of $88 million into the fund that uses money pooled by all lenders to guarantee customer deposits in the event of a bank's failure. Italy's Bank Pekao S.A., a unit of Italy's UniCredit S.p.A. (UCG.MI) and Poland's second-largest bank, said on Wednesday it would pay the equivalent of $59 million into the fund.

In total, Polish banks will have to provide about $420 million to meet the guarantees covering deposits in the failed bank, said Fitch Ratings. That equates to about 12% of the Polish banks' combined pretax profit for the nine months ended September this year, putting pressure on the sector's profitability.

The Polish banking sector has otherwise shown strong resilience to the financial crisis that began in 2008, posting record profits in recent years. Poland didn't have to bail out any banks during Europe's sovereign-debt crisis.

SK Bank suffered a run on deposits earlier this year after incurring high losses on bad loans made to real-estate developers--nearly half of its loan portfolio at the end of September was considered non-performing. Poland's financial market regulator said on Monday that no bank was interested in taking over SK Bank.

The vice president of the Polish financial regulator, Wojciech Kwasniak, said in an interview in local daily Rzeczpospolita on Wednesday that the largest banks in Poland could continue buying smaller peers but they should be careful.

"Let's remember that the top 10 and especially the top five banks have particular obligations as to responsible management," he said.

The Polish banking sector has undergone some consolidation over the past few years, with Spain's Banco Santander S.A. (SAN.MC) making the most aggressive moves. Most of the country's banking sector is in the hands of banks headquartered in the eurozone. That prompted Polish officials during the currency bloc's debt crisis to push local banks to consider buying small lenders to reclaim some of the sector from foreigners, an effort that has so far made little headway.

Write to Martin M. Sobczyk at [e-mail]

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November 25, 2015 07:22 ET (12:22 GMT)

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