Polish banks stable despite pandemic: central bank

“The consequences of the coronavirus pandemic do not pose a threat to the stability of the Polish banking sector, but there is a risk stemming from currency-denominated mortgages,” the central bank reported.

“Earlier lack of significant financial imbalances, high capital levels in the banking system as well as fiscal, monetary and macro-prudential support measures helped the banking system as a whole to preserve its ability to absorb considerable losses,” the National Bank of Poland (NBP) said in a financial system stability report on Wednesday.

Even under very pessimistic macroeconomic scenarios, a great majority of banks, including those of key significance to the system, will be able to handle potential losses and will be left with adequate capital to meet regulatory requirements.

However, the “legal risk of the foreign currency mortgage portfolio is high and has recently become the main threat to the stability of the Polish financial system,” the bank wrote.

A combination of provisions for such mortgages and pandemic-related losses may negatively affect the banks' standing, according to the NBP.

“A lowered profitability of the banking sector constitutes a long-term challenge,” the bank continued.

The NBP recommended that banks maintain a cautious capital policy “until the outcomes of the pandemic and... foreign currency loan arrangements are fully visible.”