The outlook for future economic development will have an impact on demand for banking products and possible further changes in the cost of risk as a result of updated assumptions about the economic situation.
Prospects
Factors which will affect the results of the Group
THE ACTIVITY OF BANK PEKAO S.A. AND THE GROUP’S COMPANIES IS IN MAJORITY CONDUCTED ON THE POLISH TERRITORY, HENCE THE GROUP’S PERFORMANCE WILL BE MAINLY AFFECTED BY ECONOMIC SITUATION IN THE COUNTRY AND INTERNATIONAL EVENTS THAT HAVE INFLUENCE ON DOMESTIC ECONOMY.
The year 2021 was a period of a dynamic economic rebound, strongly supported by the first success in the fight against the pandemic and an overall rise in optimism. Poland’s GDP increased by 5.7% y/y due to revival of economic activity, though it faced a new challenge from very high level of inflation. For the year 2022 we predict a slowdown of the pace of economic growth towards 4% y/y, with the trough of the cycle at the turn of the year 2022/2023 due to transfer effect coupled with a gradual cooling of the overall economic activity. In our opinion the main sources of this slowdown would be: weakening of private consumption (including the effects of high inflation), delays in public investments and a steep cycle of interest rates hikes. Furthermore, among the downside risk we identify the uncertainty concerning further development of the COVID-19 pandemic as well as the current geopolitical situation
Monetary policy is an important factor influencing banks’ performance. The current economic outlook as well as an elevated inflation level have prompted the MPC to start a cycle of interest rates hikes in October 2021. During the last few months the main interest rate have been raised in a number of hikes from 0.10% to 2.25%, and we expect that it will reach the level of 4.00%. Rising interest rates are beneficial for banks, since it positively impacts their net interest income which is the key source of operational income of the sector
Independently from economic situation, tax and regulatory environment invariably plays major role for banks. In particular, this includes tax on certain financial institutions, high capital requirements, contributions to Bank Guarantee Fund (BFG), costs of further adjustment to a number of regulatory solutions (MIFID II, RODO/GDPR, PSD II, MREL, among others), as well as introduction in Poland of cap on asset management fees. After a temporary reduction in in banks’ mandatory contributions to BFG in 2021, they will return to their pre-pandemic level and thus will rise significantly during the current year. In general the tax and regulatory environment of the sector remains very restrictive, which, combined with the unprecedented economic situation, may constrain certain banks’ credit expansion and impact their financial results.
The issue of foreign currency mortgages continues to be one of the most important factors in the institutional environment. Considering no systemic solution in this matter, the banking system will be most affected by court decisions in individual cases. A number of events (i.a. the rulings of CJEU) has led towards higher number of borrowers seeking judicial resolution. This will have a strong negative impact on the performance of banks, especially those with a large portfolio of such loans. So far, the reserves established by banks due to the expected legal risk have been the main channel of influence – they have already strongly impacted the 2020 as well as 2021 results. According to most estimates, the total costs for the sector may reach several dozen billion zlotys, but they are difficult to estimate and will be spread over time. Much will depend on, among others, the actual number of lawsuits (how many borrowers will decide to take legal action), the interpretation of national courts in individual cases, the reactions of national supervisory institutions or the actions of the banks themselves. Moreover, it cannot be ruled out that the issue of CHF loans will find a final solution by way of legislation.
Bank Pekao S.A. will monitor the direction of decisions made by Polish courts, as well as market practice and borrowers’ behaviour, and will assess on an ongoing basis the probability of cash outflow with respect to the mortgage loans in question. However, the impact may be indirect in case of potential financial problems of some smaller institutions with a particularly large exposure to the discussed risk.