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The boss of Poland’s largest bank said a capital shortage created by the high cost of compensating those caught up in a mortgage mis-selling dispute had left the sector ill-equipped to fund the country’s green energy transition.
Szymon Midera, chief executive of state-controlled PKO BP, also warned of fresh uncertainty from a new and separate wave of lawsuits from customers that threatened to prolong the problem, while also slowing the pace of banking sector consolidation.
Banks need to co-finance green projects to help Prime Minister Donald Tusk meet his pledge to reduce Poland’s reliance on polluting coal, which still generates about 60 per cent of its electricity. This switch is also at the heart of Warsaw’s plans to use billions of recently unfrozen EU funds.
“We [Polish banks] will finance as much as we’re able, but I believe this will cover at best one-third of the investment needs for the energy transition,” Midera said in an interview with the Financial Times.
Poland’s EU funds were unlocked when Tusk’s pro-EU coalition ousted the rightwing Law and Justice (PiS) party almost a year ago. Brussels withheld the money during years of feuding with the PiS government over the erosion of Poland’s rule of law.
The EU money gives a big boost to Poland’s economy, but Midera said most of the debt co-financing for energy projects would need to come from foreign institutions rather than domestic lenders whose combined capital had been cut by one-third, or nearly 80bn zlotys ($19.5bn), since disgruntled mortgage holders began suing lenders five years ago.
“Under EU law, there are strict limits on how much financing can be provided with a given level of capital,” he said.
The PKO BP chief also echoed warnings from Warsaw’s ruling politicians about Poland needing more time to disburse its EU money. Under existing regulations, Warsaw must allocate almost €60bn of EU pandemic recovery funds to co-financed projects before the end of 2026.
“We need to be more flexible, as an EU community, when it comes to the timing of spending [of the EU funds], as we must do everything possible to lower the cost of energy within the EU,” he said.
Polish banks have been forced to compensate clients who successfully sued them for recommending the purchase of mortgages in Swiss francs rather than Polish zlotys about two decades ago, to benefit at the time from lower interest rates in Switzerland than in Poland. Mortgage holders then accused their banks of misinforming them about a currency exchange risk that left them with spiralling mortgage payments once the franc soared in value against the zloty.
PKO BP took a provision of almost 1bn zlotys in its most recent quarterly results related to compensatory repayments on Swiss-franc loans.
PKO BP and other Polish banks also face separate lawsuits, in particular from claims that they misused the Warsaw Interbank Offered Rate (Wibor), the benchmark rate used for mortgages and some other consumer loans.
The European Court of Justice is reviewing a Wibor case that could open the way for domestic lawsuits. Law firms are also looking at separate cases related to whether banks violated Poland’s consumer credit legislation.
Midera predicted that a new round of court disputes would put a brake on domestic banking consolidation.
“Probably the [Polish] consolidation process will start in the next few years, but it’s still not obvious because of the legal risks,” Midera said. “These risks have made it impossible to consolidate the sector until now and are still a major hurdle.”
State banks led by PKO BP and Bank Pekao control half the Polish market, giving them a big footprint that also suited the nationalist agenda pursued by PiS during its two terms of office.
But Midera, who was appointed chief executive as part of the Tusk government’s sweeping management overhaul in state companies, downplayed the prospect of Tusk instead moving towards privatisations, citing Russia’s full-invasion of Ukraine just over 1,000 days ago.
“When it comes to privatisation, I believe everything has changed since the war in Ukraine,” Midera said. “The conflict has shifted perceptions about the role of the government in the economy . . . So we now need very strong government decisions and influence on many fields.”
PKO BP aims to grow its retail clientele to 15mn customers in three years from 11.4mn now, in part by financing more ecommerce transactions.
Midera also forecast that the bank could keep its return on equity above 18 per cent as it focused on organic growth rather than acquisitions, even amid renewed M&A activity elsewhere in Europe.
“We have a really high return on equity and growth perspectives in Poland. So what’s the business case for pursuing mergers and acquisitions abroad where the ROE is lower?” he said.
