Poland's financial system sees systemic risk remaining limited - c.bank
Systemic risk in the domestic financial system remains limited, banks exhibit a great loss absorption capacity, Poland's central bank NBP said in the newest financial stability report.
"The systemic risk in the domestic financial system remains limited. Banks exhibit a great capacity to absorb losses and provide financial services even in pessimistic stress test scenarios," the National Bank of Poland said in the report.
"Banks' substantial excess capital ensures room for lending growth. The key future challenges for the financial system stem mainly from legal and regulatory risks. Cyclical risk runs at a moderate level and poses no threat to financial stability in Poland," it added.
As NBP pointed out, although it is desirable to have a low level of risk in the financial system in principle, but it is important this is not achieved at the expense of its main functions of performance.
"For some time, there has been a significant decline in credit to the real economy by the banking sector, while development of the rest of the financial sector remained limited. As a result, the role of the financial system in the real economy is decreasing. Public authorities and financial institutions need to take these trends into reflection," Poland's central bank stressed.
According to the report, the growth rate of lending to the non-financial sector is beginning to recover steadily, but in the next two years its pace will not be high enough for the bank loan-to-GDP ratio to increase markedly.
Poland's central bank NBP assessed that legal uncertainty, and its costs, remain a challenge to the functioning of Poland’s financial system, and to the banking sector in particular.
"This has so far manifested itself in high costs of the legal risk of FX housing loans. Uncertainty associated with the interpretation of consumer protection regulations has recently begun to apply to zloty loans, i.e. both consumer loans due to the free credit sanction as well as housing loans after borrowers’ attempts to contest agreements on floating interest loans," NBP said in the report.
"This limits predictability of the terms of the functioning of the credit market and may also reduce availability of credit, mainly for households," it added.
According to the report by the National Bank of Poland, the reform of benchmarks is progressing, but its successful completion still requires a number of steps to be taken.
NBP pointed out that the cost of credit risk remains moderate, and it should not increase significantly because of the robust labour market, the relatively high corporate capacity to service liabilities and the prudential lending policy of banks in the past.
As Poland's central bank NBP assessed, banks in Poland demonstrate high resilience to liquidity risk.
"This is because, among others, of the high share of retail deposit in funding, low deposit concentration, high share of guaranteed deposits and large portfolio of liquid assets," it explained.
Banks' exposure to Treasury bonds and State Treasury-guaranteed bonds remains high, but their sensitivity to risk associated with the exposure is limited.
"Banks' sensitivity to changes in bond valuations is limited because a considerable portion of the portfolio is held to maturity and its duration is
relatively short. At the same time, the portfolio of marked-to-market Treasury securities is sufficient to cover large scale liquidity risk," NBP assessed.
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