'Re-Polonisation' puts banks under government scrutiny

September 26, 2016 11:26 AM EDT

The logo of the PKO BP is seen on the bank's headquarters in Warsaw, Poland, May 6, 2016. REUTERS/Kacper Pempel/File Photo

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By Marcin Goclowski

WARSAW (Reuters) - Poland's conservative Law and Justice (PiS) government has set out to buy bank stakes back from foreign investors, a move some bankers and economists say will hamper lenders that prospered through the global financial crisis.

Last Wednesday, state-run Alior Bank and PKO BP (NYSE: PKO) confirmed they are in talks to buy Raiffeisen's banking and leasing arms respectively.

The government has already bought back GE Money's (NYSE: GE) Polish arm this year and plans to buy the second-largest lender Pekao (NYSE: PEO) from UniCredit .

The state owns two other banks outright, controls majority stakes in a further two and has a 30-percent-plus stake in the biggest bank, PKO: http://tmsnrt.rs/2df8gYJ

Poles played a leading role in the 1980s in ending communist rule in eastern Europe. Some now fear banks owned partly by the government would boost lending to projects such as coal mines or large infrastructure projects that might create jobs but not profits in an economy long viewed as a showcase for democracy.

"I'm not a supporter of turning re-Polonisation into nationalisation," said Cezary Stypulkowski, the chief executive of Poland's No.4 lender mBank (NYSE: MBK), advocating "domestication" of management instead to ensure credit reaches local companies.

"It is very easy to manage the banking sector by political structures. In such cases, a tendency to circumvent the rules typically ends in disaster."

PiS chairman and former Polish prime minister Jarosław Kaczyński told supporters in 2012: "It must be made clear ... that our goal is a re-Polonisation of Polish banks."

PiS, which came to power last year, pledged to introduce new taxes for banks and supermarkets, cut the retirement age and boost state payments for children.

It also wanted to help homeowners who borrowed in foreign currency when exchange rates were favorable by converting the debts into Polish zlotys at the original rate, a promise the state has yet to fully meet.


But its plans for banks could prove most controversial.

"There's a political will to conduct re-Polonisation," said one senior official. "It was decided, politically, that there's too much foreign capital in the banking sector."

If the government succeeds in its strategy, the state and other Polish investors, including one of its richest men, Leszek Czarnecki, will control banks with 54 percent of Poland's banking assets, including mortgages and loans.

That will displace foreign investors who now control the majority of such assets.

Officials familiar with government thinking told Reuters that it is motivated, in part, by a desire to prevent banks from choking off credit to the economy to preserve large shareholder dividends.

"The issue is to make sure no one turns off the tap when a crisis occurs, like in 2009," one of those people said.

Some managers have publicly supported such a stance.

"We prefer to credit the economy than pay out a dividend," Zbigniew Jagiello, chief executive of top bank PKO BP (NYSE: PKO), recently told Poland's PAP state news agency, adding that he hoped to do both. PKO is a state-controlled entity.

The government in Warsaw has also played down any risk of political interference. "After possible re-Polonisation, the government's impact on banks will be rather small," said Rafal Bochenek, a spokesman for the government.

But others are skeptical. "I haven't seen any research confirming that international banking groups overestimate the risk in crisis times," said Jakub Borowski, chief economist at Credit Agricole in Warsaw.

"We are dealing with an expression of faith that has not been confirmed by empirical studies yet."

Krzysztof Pietraszkiewicz, head of Polish banking lobby group ZBP, said that while he supports some increase in state ownership in the sector, he hoped it would not lead to lending for loss-making projects or generous loan restructuring.

"One should ... avoid the situation where public opinion forces politicians to act in a way that poses a threat for the financial sector," he said.

The Polish government is examining its next steps.

It could, via state-owned Alior Bank, buy Raiffeisen's Polish unit, as well as Pekao, via state-run insurer PZU, from UniCredit. Raiffeinsen is worth around 1 billion euros. The value of UniCredit's 40 percent stake in Pekao is worth roughly $3.5 billion.

But Credit Agricole's Borowski questions "what is more beneficial for long-term economic growth and welfare. Can we spend these billions of zlotys more productively than parking them in banks?"

(Additional reporting by Jakub Iglewski and Pawel Sobczak; editing by John O'Donnell/Ruth Pitchford)

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