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Poles vault into bank boom
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August 16, 1999: 10:41 a.m. ET
Post-communist Poland is happy to oblige international bank investors
By Staff Writer Douglas Herbert
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LONDON (CNNfn) - Now from Poland, birthplace of the Solidarity labor movement, comes another milestone along the road from martial law to mortgage lending: the Great Bank Sell-off.
Inspired by a new generation of Poles with their eyes on the capitalist prize, the Polish government has been hard at work ceding partial or even full control of the country's biggest banks to outsiders.
A relentless parade of Germans, Austrians, Italians and Dutch, among others, has been converging on Poland's financial sector, carving out strategic niches that offer a beachhead on what many see as the country's budding financial revolution.
The new entrants are banking -- literally -- on the prospect that central Europe's largest economy, with a population of 39 million people, rising personal incomes and a rapidly growing hunger for loans, is on the brink of a consumer boom.
By the end of last year, European Union countries had contributed $16.1 billion, or nearly 60 percent, of the $30.7 billion in direct outside investment in Poland by overseas companies, according to the Polish Agency for Foreign Investment. Of that amount, overseas direct investment in 1998 alone totaled $10 billion.
That compares to a relatively paltry $5.1 billion, or 19 percent, of cumulative investment by North American firms, and $1.8 billion, or 6 percent, by Asian firms.
Throwing out the bank with the bathwater?
Poland's big-bank sale is unique in central Europe. In many countries across the region -- including Poland -- Byzantine haggling over laws limiting the sale of land and businesses to international investors is still a staple of parliamentary debate.
Given this, many analysts marvel that the Poles have so readily abdicated such a large chunk of their national patrimony to overseas investors -- especially since the long-term consequences of such a move can hardly be assured.
"All of the available Polish banks have been bought," said Bill Vincent, the director of emerging European markets at ING Bank in London. "It's the most amazing thing that the Poles have sold their entire banking sector to foreigners."
While the largest portion of outside funds -- about $15.9 billion -- has been earmarked for manufacturing, some of the highest-profile incursions have come in the banking sector.
Among the big deals to date: Italy's Unicredito has snapped up a 50 percent stake in Pekao SA, one of the top two Polish banks; ING Bank is a majority holder of Bank Slanski; and Britain's Allied Irish owns two banks -- WBK in western Poland and Bank Zachodni in the southwest.
Bank Austria Creditanstalt plans to merge its Polish operations with Polish bank PBK.
Arguably, however, the Germans have made the greatest splash.
Last week, Munich-based Bayerische HypoVereinsbank, Europe's largest mortgage bank, paid 350 million marks for a 27.85 percent stake in Bank Przemyslowo-Handlowy SA. The latest tender came on top of HypoVereinsbank's $604 million investment in BPH last year and boosted its total holding in the Polish bank to over 77 percent.
To date, only Russian oil and natural gas behemoth Gazprom has beaten HypoVereinsbank in terms of total investment by a single company in Poland, at $938 million. That figure, however, represents cumulative funds invested by Gazprom in an East-West gas pipeline since 1996.
As part of its "so-called "Bank of the Regions" strategy, HypoVereinsbank plans to focus on mortgage lending in Poland, rolling out about 200 new outlets over the next three years to bring its nationwide presence to 400 branches.
Meanwhile, rival Commerzbank, Germany's fourth largest commercial bank, has dug in its heels by setting up its own mortgage unit. Commerzbank owns a 30 percent stake in recently-merged Bank Rozwoju Exportu and Bank Handlowy.
A disappointment for Deutsche Bank
The jostling for a Polish bank to call one's own has resulted in at least one major disappointment. Deutsche Bank was rebuffed earlier this month in a bid to raise its stake in BIG Bank Gdanski from a current 9.9 percent, to around 25 percent.
Instead, BIG opted to join forces with the European financial consortium Eureko, which now holds a 9.1 percent stake in BIG Bank, and with Banco Comercial Portugues, which upped its holding to 14.6 percent, from just over 5 percent.
Udo Clesius, the president of HypoVereinsbank Polska, said the German bank's recent purchase gelled perfectly with a strategic focus on regional banking acquisitions.
Clesius believes HypoVereinsbank is perfectly poised to take advantage of new Polish legislation, passed in January of this year, allowing banks to issue mortgage securities to individuals for the first time in over five decades.
Last year, bank lending represented only 25 percent of Poland's gross domestic product -- far short of the 100 percent or higher ratios typical in western Europe.
With no mortgage bank to speak of in Poland, until now, only 9 percent of new housing was financed with debt in 1998 -- most of it coming in the form of real estate financing.
In the past, what westerners call "mortgages" have generally been available only to companies and housing associations. Individuals have had to be either blessed by fate with enormous stockpiles of liquid cash, or wily enough to broker creative loan arrangements with sympathetic lenders.
The Wall Street Journal recently reported that mortgage borrowing in Poland in 1998 averaged only $28 per person last year, vs. $7,975 in Germany and $84 in the Czech republic.
But even with interest rates towering at around 25 percent and loose regulation, the newspaper noted, the Polish Central Bank still reported a 52 percent surge in loan growth in 1998.
Clesius, at HypoVereinsbank, said Poland is primed for a construction and consumer spending boom underpinned by rising personal incomes and sharp demand for new housing in a market still dominated by shabby Soviet-era edifices.
Higher rates of loan growth
Loan volumes grew by around 30 percent in the first six months of this year, according to Sandy Chen, a central European bank analyst in London for Credit Suisse First Boston.
The country's estimated GDP was $145 billion, up 4.8 percent from a year earlier; inflation stood at 8.6 percent, nearly half the 18.5 percent rate just two years before.
The momentum is likely to pick up in the second half, in line with higher expected rates of GDP growth in western Europe, and especially in Germany, Poland's No. 1 outside investor in 1998, at $5.1 billion.
"For office buildings and apartments and private housing, there is already huge demand," said Clesius.
Vincent, at ING Bank, said Poland seemed finally to be coming into its own after a period in the early 1990s in which it lagged the neighboring Czech Republic in terms of growth. From 1994 to 1998, he said, Poland grew at an average rate of around 6 percent, compared with 3 percent in Hungary and 4 percent in the Czech Republic.
Russia, by contrast, saw its output shrink.
Chen at CS First Boston agrees that Poland's reputation as a central European powerhouse-in-the-making is well deserved.
"Half of the people in emerging Europe are Polish," he said. "Size matters (and) that tends to make it No. 1 on the 'to do' list." Asked what he foresees in the banking sector, Chen said the endgame of the bidding wars is finally in sight.
"Everyone has their chips down, and now they'll be playing hard."
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