Thursday, December 12, 2024

Chairman of the KNF: We are concerned about the limited interest of entrepreneurs in investments. This affects the low demand for investment loans

FINANCEChairman of the KNF: We are concerned about the limited interest of entrepreneurs in investments. This affects the low demand for investment loans

In the first quarter of 2024, banks improved their results despite comparing them to an excellent year in 2023. Thus, they have the capability to provide loans to companies for development. However, the problem lies in the cautious approach of the businesses themselves towards taking out investment loans and seeking other sources of financing for investments. A significant issue in the Polish market is the weakness of the capital market, particularly financing through the stock exchange.

“The banks’ results in the first quarter of this year amounted to about PLN 10 billion, which is roughly 20 percent more than in the same period of the previous year,” said Jacek JastrzÄ™bski, Chairman of the Financial Supervision Authority (KNF), to Newseria Biznes. “As a financial supervision authority, we are pleased with these results, but we are also aware of their causes. They are primarily the consequences of the macroeconomic situation, including the level of interest rates. Combined with the banking sector’s excess liquidity, this allows banks to achieve very high interest margins, benefiting from high loan interest rates without having to compete actively for deposits due to their liquidity situation.”

The entire previous year was also exceptionally favorable for the sector, yielding over PLN 28 billion in profit. This translated into generous dividends paid to shareholders, which required KNF’s approval, and dynamic increases in banks’ stock prices. The market environment favors banks. During the period of zero interest rates, they increased service fees, and when interest rates rose, they also began to profit from interest. As a result, there is no shortage of financial liquidity in the sector.

“Banks have the potential to finance the Polish economy. What concerns us more is the limited interest of the Polish economy, primarily Polish entrepreneurs, in investments. This, in turn, translates into limited demand for investment credit,” Jacek JastrzÄ™bski points out. “In our opinion, this demand is unsatisfactory. We would like to see more investments and more investment credit. We believe it is necessary to impact the so-called real economy, particularly the demand side, to strengthen interest in investments, which will subsequently increase interest in investment credit.”

However, data from the National Bank of Poland indicate that in the first quarter of this year, banks tightened their credit policy towards companies, both large and small and medium-sized enterprises. They reduced the maximum loan amount and maximum credit period, raised margins for normal and higher-risk loans, increased non-interest credit costs, and tightened collateral requirements. The surveyed banks justified the tightening of credit policy primarily with increased risk of deterioration in the country’s economic situation and sectoral risks (especially in the steel, construction, furniture, real estate, and retail sectors), as well as the quality of the loan portfolio and their current or expected capital situation. The decline in demand for credit financing from companies was the main factor motivating banks to ease their credit policies.

“We are very keen, and this is a common concern not only of financial supervision but of all institutions that care about the development of Poland’s economy, to increase the role of non-bank sources of financing for the Polish economy, primarily the capital market,” notes the Chairman of the KNF. “If we look at data on the Polish financial market, it is clear that the share of the capital market in financing our economy is significantly lower than in comparable economies. I’m not comparing us to the United States, which is a completely different world, but even compared to European countries, the share of the capital market is unsatisfactory.”

According to a WiseEuropa report, the Warsaw Stock Exchange is far from playing a role in the economy comparable to stock exchanges in other countries. Particularly (about 100 percent). The Paris stock exchange has a slightly lower relative capitalization (around 85 percent). Meanwhile, the main markets in China and Germany boast capitalizations of 60-70 percent of their respective GDPs. In the case of the Warsaw Stock Exchange (GPW), this ratio stands at around 40 percent, characteristic of moderately developed regional stock exchanges like the Italian stock exchange. Moreover, about half of this amount comes from foreign companies listed in Warsaw, further diminishing the GPW’s role in financing domestic entities. Additionally, due to the low number and small volume of IPOs and the stabilization of the number of listed entities over the past decade, the capitalization of the Polish market relative to the entire economy has not been growing.

As noted by Finance Minister Andrzej DomaÅ„ski in February 2024 in “Parkiet,” the capital market’s share in financing the Polish economy currently amounts to only about 5-6 percent. In the European Union, this share is five times higher, and in the United States, it is over ten times higher. In the context of a shallow capital market, the possibilities for financing private investments are limited.

“For years, together with other stakeholders, we have been seeking ways to increase the attractiveness of the capital market for investors. We have had numerous opportunities to discuss this. I believe that, above all, we need to ensure that the capital market is perceived by investors as a place for investment rather than gambling. We shouldn’t even use the phrase ‘playing the stock market’; we should say ‘investing in the stock market,'” emphasizes Jacek JastrzÄ™bski. “But to achieve this effect, we must also ensure that the stock market offers investors attractive returns.”

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