Client Loans To Grow At Pre-Pandemic Levels In Poland, Despite War

Fitch Solutions / Corporates / Poland / Fri 27 May, 2022

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Key View

  • We at Fitch Solutions, have revised down our forecasts for Poland’s client loan growth to 5.8% and 5.5% in 2022 and 2023 respectively, from 6.0% and 7.5% previously.
  • Our revisions reflect a slowdown in economic momentum as a result of Poland’s exposure to the war in Ukraine, rising interest rates and high inflation. However, stronger than expected real GDP growth in Q122 has helped minimise our revision for 2022.
  • We expect relatively strong bank profits over the coming quarters, but a slight worsening in bank asset quality as a result of high inflation and higher interest rates.

At Fitch Solutions, we forecast Poland’s client loan growth of 5.8% in 2022 and 5.5% in 2023. While this is higher than the 5.1% growth rate recorded in 2021 (see chart below) and in line with the pre-pandemic five-year average, it is a downward revision from our previous forecasts of 6.0% and 7.5% respectively. This is a result of weaker economic growth this year and next, persistent inflation and further hikes expected by the National Bank of Poland (NBP). Despite this, our 2022 loan growth revision has been small, following stronger-than-expected real GDP growth in Q122 of 2.4% q-o-q and 8.5% y-o-y, which will support client loan growth.

Loan Growth To Soften

Poland - Client Loan Growth, y-o-y

Source: NBP, Fitch Solutions

Credit uptake will face a number of headwinds. First, we forecast inflation (12.4% y-o-y, the highest reading since December 1997) to remain elevated over 2022 and 2023, averaging 11.0% and 7.5% respectively, as a result of higher consumption from the arrival of 3.5mn Ukrainian refugees since the start of the war, increased zloty volatility, heightened commodity and energy prices and supply-chain disruptions. High inflation will continue to eat into household disposable incomes, which could see vulnerable households struggle to pay back their obligations and may reduce banks’ willingness to extend credit in their effort to shore up their balance sheets, due to rising risks of loans going sour.

Second, we expect the NBP to hike its policy rate by an additional 125 basis points (bps) to 6.50% by end-2022, to rein in inflation and prevent a cost of living crisis. At its latest rate meeting on May 5 2022, the NBP’s Monetary Policy Council hiked by a below-consensus 75bps to 5.25%. Higher interest rates will weigh on credit demand as borrowing becomes more expensive for households and businesses.

Third, despite the fact real GDP was strong for Q122, we expect a slowdown in the coming quarters. Only 3.3% of Ukrainians have found work in Poland so far, which means aggregate consumption is likely to fall as their savings and handouts run out. Also, Poland is one of the most exposed countries in Europe to the war in Ukraine, and the global macroeconomic backdrop will remain challenging. Weaker economic momentum is likely to constrain credit uptake this year and next year.

Corporate Lending Gains Overtaking Household Credit

Poland - Private Credit Extended, %y-o-y

Source: NBP, Fitch Solutions

We anticipate corporate credit to continue growing at a greater pace compared to household credit, as households struggle to borrow. Lending to households remained resilient during the pandemic, and the share of household lending compared to total lending increased from 64.4% in March 2020 to 67.6% in July 2021. On the other hand, corporate lending took a hit as banks reassessed risk exposure and investment slowed. However, corporate lending credit overtook household credit in February 2022 (see chart above), a trend we expect to continue going forward. Rising interest rates are likely to deter both households and firms from taking out loans, as an already high inflation environment makes it more expensive to do so, but firms are more likely to retain their creditworthiness, hence banks may be more willing to lend to them, as opposed to households.

We forecast client deposits to grow by 8.0% in 2022. This is up from our previous forecast of 6.4%, but down from 11.0% recorded in 2021. This will largely be driven by higher interest rates, which will encourage saving over spending.


Downward Trend In NPLs To End But Profits To Continue Rising
Poland - Non-Performing Loans, % of Total Loans (LHS), Poland - Banking Sector Profit/ Loss, PLNmn (RHS)
Source: ECB, NBP, Fitch Solutions

We expect relatively strong bank profits over the coming quarters, but a slight worsening of bank asset quality. Asset quality was not materially impacted by the Covid-19 pandemic, with non-performing loans (NPLs) falling from 5.1% in March 2020 to 4.0% in September 2021, the latest available data (see chart above). However, with high inflation eating into household purchasing powers, plus higher interest rates making borrowing more expensive, we expect to see a slight increase in NPLs over the course of 2022, and hence a worsening in bank asset quality in the coming months. Despite this, we expect bank’s profits to continue rising over the coming quarters as a result of higher interest rates, which will increase interest income, following a strong start to the year (see chart above). However, the banking sector still faces continued profitability pressures surrounding the legal provisions set aside against Swiss franc mortgage portfolios. Also, a new government programme, the borrowers' support program, announced in May 2022 will increase bank's costs and reduce their profits, as the scheme aims to help consumers for whom mortgage repayments have increased sharply, as a result of rising interest rates.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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