The Polish banking sector posted a net profit of PLN8.85bn (€1.94bn) in 2021 after a net loss of PLN322mn in 2020 when the pandemic-induced recession hit lenders hard, Poland’s financial market watchdog KNF said on February 14.

The return to profitability last year comes as no surprise after the economy rebounded fast from the pandemic shock, delivering growth of 5.7% – the swiftest expansion since 2007.

This year is shaping up to be at least as profitable as 2021, as banks’ income from net interest is bound to grow on the back of monetary tightening by the National Bank of Poland (NBP). Poland’s reference interest rate is currently 2.75%, having gone up by a combined 2.65pp since October, with further increases all but certain as the NBP is trying to contain inflation. 

Analysts say that rates climbing to around 4% this year should not hamper economic growth, expected to slow down only a little to a still robust 5.5%.

Banks’ net result in 2021 owed to a reduction of 29% in the value of impairments to PLN13.37bn, the breakdown of the KNF data showed.  A lot of banks' impairments have been made to cover the potential costs of clearing up the backlog of foreign currency loans.

Fees and provisions income was another important driver, increasing 15.3% to PLN17.11bn. 

Banks’ interest income declined 10% to PLN51.07bn last year in the environment of ultra-low interest rates in January-October.

A total of 25 banks – nine out of 30 commercial and 16 out of 514 cooperative banks – posted a joint loss of PLN4bn. The loss-making banks had a 16% share in the sector’s assets.

The return on assets (ROA) indicator grew 0.37pp to 0.36% in 2021 while return on equity (ROE) increased 4.43pp to 4.34%.

The cost to income (C/I) ratio declined 4.59pp to 58.83%. Banks’ reserves to income (R/I) ratio decreased 10.79pp to 19.62%.

Polish banks’ total capital ratio – capital and reserves against risk-weighted assets – was 19.98% at the end of December, the KNF also said. The Tier 1 (T1) capital ratio was 17.95%. Both indicators were well above the KNF minima.