Two dozen Polish banks will need to seek new sources of income and diversify their portfolios in 2025 as falling interest rates squeeze their net interest income, the Polish Bank Association warned, PAP reported on April 29.

The association reported that the profitability of the country’s banking sector remains heavily reliant on interest income, with over 81% of financial results generated under conditions of high interest rates. As the monetary policy outlook shifts, this dependency could expose banks to significant financial pressure.

“The financial results of the Polish banking sector are over 81% created by interest income generated in an environment of high interest rates,” the association stated in a presentation. “The current result, achieved in an environment of high interest rates, should therefore be treated as a temporary state – and as an opportunity to build the foundations for a greater share of the banking sector in the expected growth in investment (including private investment),” it added, as cited by PAP.

Poland’s core inflation (price growth excluding movement in prices of food and energy) came in at 3.6% year on year in March (chart) after posting the same reading in February, the National Bank of Poland (NBP) said on April 16. Core inflation has been in a downward trend, longer term, as the indicator declined 0.7pp between November and March on the back of the weakening of labour cost dynamics, limited demand pressure and subdued inflation abroad.

The NBP’s reference rate has been at a 20-year high of 5.75% since October 2023. The current consensus is for a 50bp cut in May and – possibly – another one in June to bring the headline interest rate at 4.75%.

“I come now as a dove leading [other] doves,” central bank Governor Adam Glapiński’s press conference on April 3, referring to a change in the position of the Monetary Policy Council (RPP), the central bank’s rate-setting body, prompting analyst expectations for the first rate cut since October 2023 to take place in May already.

The Polish Bank Association also noted that risk exposure linked to foreign currency loans, zloty-denominated loans and consumer credit will continue to present challenges. While interest on debt instruments—particularly State Treasury bonds—remains a stabilising factor, it is unlikely to fully offset the anticipated decline in core income as rates fall.

The warning follows a series of monetary easing signals from the National Bank of Poland, which is expected to begin reducing interest rates after maintaining high levels to combat inflation throughout 2023 and early 2024.

According to the association, the shift in interest rate dynamics presents an opportunity for the banking sector to reposition itself to support investment-led growth, but doing so will require structural changes to income strategies.

The sector’s future resilience may depend on how effectively banks can transition from interest-driven profitability towards broader revenue streams amid a changing economic environment.