Competition

As at the end of 2016, the situation in the banking sector was stable. However, a number of sources of risk remain in the environment of banks, including regulatory risk associated with housing loans in foreign currencies.

In the conditions of stable economic growth, in 2016 the banking sector generated a net profit of PLN 13.9 billion (+24.3% y/y). A high, two-digit rate of net profit growth was caused by one-off events that occurred both in 2016 and in 2015; the most important ones included:

in 2015:

  • additional write-downs for the loan portfolio of SK Bank in Wołomin (SK Bank),
  • payments made by banks to the guaranteed funds protection fund (FOŚG) in connection with the bankruptcy of SK Bank,
  • costs incurred by banks in connection with the establishment of the Borrowers’ Support Fund,

in 2016: additional revenue from the settlement of the Visa Europe Ltd. transaction by Visa Inc. (the Visa transaction).

In 2016, in addition to the Visa transaction settlement, the following factors had a positive effect on the banking sector's profit: a noticeable improvement in the net interest income (resulting from both a y/y increase in interest income and a significant decrease in interest expenses) and a relatively stable level of net write-downs (net of the effect of one-off events).

Bank tax charges and a decrease in net fee and commission income had an adverse effect on the net profit.

The profitability of the banking sector as at the end of 2016, measured in terms of ROE, increased to 7.7% as compared with the record low level of 6.6% as at the end of 2015.

The value of the banks’ assets increased due to good economic conditions. The scale of the banking sector’s operations increased as at the end of 2016. The sector's total assets increased to PLN 1 711 billion (+7.0% y/y). The assets structure changed as a result of the introduction tax on certain financial institutions; the share of repo transactions decreased and the share of Treasury securities increased (to approx. 15% as compared to 12% before the introduction of the tax on certain financial institutions).

The value of loans granted by the banking sector increased to PLN 1 130 billion as at the end of 2016. The rate of their growth was moderate in 2016 (4.9% y/y). The following factors affected the loan market: (1) the continued significant slow-down in the y/y rate of growth of retail housing loans (+4.9% vs. 7.1% as at the end of 2015; after adjustment for foreign exchange differences, a relative stabilization was observed), (2) the continued slow-down in the y/y growth of corporate loans (5.4% as compared to 8.3% as at the end of 2015), and (3) accelerated y/y rate of growth of consumer loans (7.3% as compared to 6.6% as at the end of 2015). Consumer loans, as well as housing loans in PLN, were among the fastest-growing categories of loans. While interest rates remained low, it was possible due to the banks’ focus on more profitable products which at the same time generated relatively low capital requirements.

The deposit market in 2016 was affected by better conditions on the labour market and an increase in the income of individuals, as well as a good liquidity position of enterprises, low level of interest rates and the low historical attractiveness of savings and investments treated as alternative products to bank deposits.

The volume of banking sector deposits increased to PLN 1 145 billion as at the end of 2016; its growth accelerated to 9.5% y/y compared to 7.5% as at the end of 2015. It was a result of: (1) continued fast y/y growth of deposits of individuals (9.5% y/y as at the end of 2016 vs. 9.8% as at the end of 2015), (2) slower y/y growth of corporate deposits (8.2% y/y vs. 10.5% y/y as at the end of 2015), and (3) a growth in deposits of the public sector (24.8% y/y vs. a decrease of 16.6% y/y as at the end of 2015).

The high rate of growth of banking sector deposits, which was maintained in 2016, accompanied by a moderate growth of the volume of banking sector loans, resulted in a drop in the loans/deposits ratio to a historical low level of 97.8% as at the end of 2016. Previously, such a low level of the loans/deposits ratio was observed in 2008.