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Banking and financial institutions

Send Print Download added: Patrycja Operacz | 2017-05-11 11:58:50
poland, financial market, banking and financial institutions

The banking system in Poland is built on three pillars: I. Central bank (the National Bank of Poland – NBP) II. Commercial banks III. Cooperative banks

From 1st January 2008, banking supervision has been carried out by the Polish Financial Supervision Authority — PFSA (Komisja Nadzoru Finansowego — KNF), as stipulated in the 21st July 2006 act on the supervision of the financial market. The merger of the financial and banking supervision was a pragmatic decision based on the evolution of the Polish financial market, the growing significance of multinational financial groups and crosssector financial products.

Before 1st January 2008, banking supervision, conducted by the Commission for Banking Supervision (Komisja Nadzoru Bankowego — KNB), had a limited objective which was to ensure the safety of deposits held by banks. The aims of the PFSA are much broader and include undertaking measures designed to ensure the regular operation of the financial market (its stability, safety and transparency). Consumer issues such as dealing with complaints, financial education and codes of best practice were not considered particularly important before 1st January 2008.

The PFSA is supervised by the President of the Council of Ministers.

 

National Bank of Poland

The National Bank of Poland is the Republic of Poland’s central bank. Its tasks are stipulated in the Constitution of the Republic of Poland, the Act on the National Bank of Poland and the Banking Act. The fundamental objective of the NBP’s activity is to maintain price stability. The most important areas of activity for the NBP are:

  • monetary policy,
  • the issue of currency,
  • the development of the payment system,
  • the management of official reserves,
  • education and information,
  • services to the State Treasury.

The management authorities of the NBP are the President of the NBP, the Monetary Policy Council and the NBP Management Board. The Monetary Policy Council lays down the foundations for monetary policy, sets interest rates and defines the level of obligatory reserves for commercial banks.

The Management Board directs NBP activities. Its fundamental tasks include the implementation of resolutions for the Monetary Policy Council, the adoption and implementation of the NBP plan of activities, the execution of the financial plan approved by the Council and the performance of tasks related to the exchange rate policy and the payment system.

 

Commercial banks

As of the end of July 2016, 37 commercial banks and 26 branches of credit institutions were conducting operations in Poland.

Mergers and acquisitions are among the most important methods of growth used by commercial banks.

These transactions became popular in Poland as early as the mid-1990s and have led to significant changes in the operation of the entire banking system over following decade. As a result, the number of entities decreased, in particular those which were economically weak, with the existing banks becoming modernised and the growth potential of the financial market rising significantly. Consolidation has also resulted in the diffusion of banking activity and risk management standards elaborated by highly development countries over the years.

Foreign investors have a decisive impact on consolidation in Poland. Another important trend noted is that global banks have dominated these transactions. Such entities are both the transaction and institutions most sought after for a merger or acquisition. In the Polish banking sector, mergers and acquisitions and the process of banks’ consolidation is still to be finished. In Poland, further M&A transactions will mainly result from those entered into on international markets by the owners of Polish entities.

 

Stock exchange and capital market

The Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A., WSE) is a joint-stock company founded by the State Treastury. The WSE began its activity in April 1991, at the time of writing investors could buy and sell on WSE stocks of more than 480 companies. In August 2007 WSE launched the New Connect – a market for young companies with a large growth potential, on which 409 companies are currently listed. The WSE, as well as the other entities operating in the Polish capital markets (i.e. investment firms and entities operating investment funds), is authorised by the PFSA (Komisja Nadzoru Finansowego). Transactions on the WSE are executed from 9.00 am to 5.00 pm (this does not apply to initiators of the block trades).

The following instruments are all traded on the there is still great potential for the development of WSE: shares, bonds, subscription rights, futures options, index participation units, allotment certificates, investment certificates, and derivative instruments

Capital market in Poland is regulated by three main acts:

  • on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading and Public Companies,
  • on Trading in Financial Instruments,
  • on Capital Market Supervision.

All of these are dated on 29th July 2005

 

Main and alternative markets

The functioning of the Warsaw Stock Exchange is based on three legal acts dated 29th July 2005:

  • the act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies,
  • the Act on Trading in Financial Instruments, the Act on Capital Market Supervision.

The capital market in Poland was created in 1817, when the first Mercantile Exchange was set up to operate in the Warsaw Exchange. Activity in its current form started on 16th April 1991, by organising, from the beginning, securities trading in an electronic form.

As of September 2016 the ownership of the Stock Exchange was as follows:

  • 1.76% — The State Treasury,
  • 48.24% — other entities including banks and brokerage houses.

The General Meeting of Shareholders is the highest decision-making body, its main function being to select 7 members of the Supervisory Board and the President of the Management Board. The Management Board comprises four members, with the President of the Management Board being elected for a three-year term.

The purpose of the WSE is to organise trading in financial instruments. The Exchange provides a concentration of buy and sell offers in one place and time in order to determine the course of the transaction. Trading systems valid on the Warsaw Stock Exchange are characterised by the exchange of individual fi nancial instruments being based on the orders of buyers and sellers, and therefore being called order-driven. This means that in order to determine the price of the instruments, a summary disposition of purchase orders and sales must be prepared. The matching of these orders is done according to strict rules, and the checkout process takes place during trading sessions. To improve the liquidity of traded instruments, the members of the exchange or other financial institutions can act as market animators, placing (on the basis of an appropriate agreement with Exchange) orders to buy or sell the instrument on its own account. The subjects of the trade on the stock market are securities (stocks, bonds, rights, rights to shares, investment certificates and derivatives),forward contracts, options and index units. Warsaw Stock Exchange operates in financial instruments on two markets:

Main market

The WSE Main Market has run since the Stock Exchange’s inception on 16th April 1991. The market is supervised by the Polish Financial Supervision Authority and notified to the European Commission as a regulated market

Alternative market

NewConnect is organised and maintained by the Exchange acting in the key market for an alternative system of trade. It was created for the young and growing companies, particularly working with new technology and has functioned since 30th August 2007. The subject of trade in an alternative system may be shares, the rights to shares (PDA), rights, depositary receipts and other equity securities.

Currently, the WSE implements the development strategy, designed to enhance the attractiveness and competitiveness of the market and to make Warsaw the financial centre of Central and Eastern Europe. The Polish Exchange is now an important capital stock market in Europe and a leader in Central and Eastern Europe, using the potential development of the Polish economy and the dynamism of the Polish capital market.

 

Polish Financial Supervision Authority

The PFSA initiated its activity in September 2006. In its present form, the PFSA covers banking supervision, capital market supervision, insurance supervision, pension scheme supervision and the supervision of electronic money institutions. The PFSA’s activities are supervised by the President of the Polish Council of Ministers.

The main purpose of this supervision of the financial market is to ensure the proper operation, stability, security and transparency of the financial market, as well as to ensure confidence in that market, and to safeguard the interests of the financial market participants.

The tasks of PFSA include, among other things, undertaking measures aimed at ensuring the regular operation of the financial market, undertaking measures aimed at the development of the financial market and its competitiveness and undertaking educational and information measures related to financial market operation.

The PFSA is composed of a Chairperson, two Vice-Chairpersons and four members. It is worth noting that, in civil-law cases arising from the relationships entered into in connection with participation in trading on the banking, pension, insurance or capital markets, or relating to entities operating on those markets, the PFSA’s Chairperson has the powers of a prosecutor ensuing from the provisions of the Code of Civil Procedure.

 

Acquisition of major package of shares

Rules regarding the acquisition of major package of shares are applicable only to public companies. There are some specific levels of votes that can be executed during general shareholders meetings, the exceeding of which causes some special duties to come into play. Anyone who:

  • has achieved or exceeded 5%, 10%, 15%, 20%, 25%, 33%, 50%, 75% or 90% of the total vote, or
  • has held at least 5%, 10%, 15%, 20%, 25%, 33%, 50%, 75% or 90% of the total vote and as a result of a reduction of its equity interest holds 5%, 10%, 15%, 20%, 25%, 33%, 50%, 75% or 90% or less of the total vote, respectively, is obliged to notify the Polish Financial Supervision Authority and the company of this fact immediately. This must be done no later than within four business days from the date on which the shareholder became, or by exercising due diligence could have become, aware of the change in his share in the total vote.

In the case of a change resulting from the acquisition of shares of a public company in a transaction on a regulated market (e.g. a stock exchange), the above mentioned requirement is due no later than within six trading days from the transaction date.

The notification requirement mentioned above applies also to a shareholder who:

  • has held over 10% of the total vote and this share has changed by at least:
    • 2% of the total vote, in the case of a public company whose shares have been admitted to trading on the official stock- exchange listing market, or
    • 5% of the total vote, in the case of a public company whose shares have been admitted to trading on a regulated market other than the one specified above,
    • has held over 33% of the total vote and this share has changed by at least 1%.

In some cases, the acquisition of shares may be done only by way of a tender offer. In the event of the acquisition of a number of shares in a public company, which increases a shareholder’s share in the total vote by more than:

  • 10% within a period of less than 60 days, in the case of a shareholder holding less than 33% of the total vote at the company,
  • or 5% within 12 months, in the case of a shareholder holding 33% or more of the total vote at the company.

Such acquisition may be done only by way of a tender offer to subscribe for sale or exchange of those shares in no less than 10% or 5% of the total vote, respectively.

Polish law provides mandatory buy-out insulation. A shareholder in a public company, who individually or jointly with its subsidiaries or parent entities has reached or exceeded 90% of the total vote in the company, shall be entitled, within three months from the day on which this threshold has been reached or exceeded, to demand that the other shareholders sell all the shares held in the company.

 

Venture Capital Funds

Venture Capital (VC) Funds started to operate in Poland at the beginning of the 90’s. These days between 40 and 50 VC management companies are present on the Polish market, a significant proportion of which are foreign entities looking for investment opportunities in Central-Eastern Europe. The most common types of entities active in the VC area are:

  • investment funds,
  •  investment banks,
  • special funds in the structure of the financial corporations,
  • consulting companies.

Funding in the VC mostly comes from foreign investors. However, over the last few years Polish entities have also been very active in this area.

 

Insurance regulations

Legal acts in Poland specify two sections of insurance. The first section includes life insurance, whilst the second section includes the remaining personal and property insurance types. An insurance company cannot conduct insurance activity simultaneously in the scope of both these sections. The main legal acts related to insurance activities in Poland regulate the areas of:

  • insurance activity,
  • insurance mediation,
  • compulsory insurance,
  • the Insurance Guarantee Fund and Polish Motor Insurers’ Bureau,
  • insurance and pension funds supervision and Insurance Ombudsman.

Insurance activities can be pursued only by an insurance company established as a public limited company or a mutual insurance society. The Polish insurance market is supervised by the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego). Brokers must be locally licensed. The policy language is in Polish, as is the unit of currency: zloty (PLN). The main compulsory insurance according to Polish law:

  • third party automobile liability (with a minimum limit of EUR 2.5 million for corporal injury in each accident and EUR 500,000 for material damage in each accident),
  • farmers third party liability,
  • fire and other natural disasters coverage for farm building,
  • workers’ compensation (social security scheme covering health and pensions),
  • lawyers’ notaries and councillor’s third party liability,
  • tax advisors’ third party liability,
  • other insurance, listed in the applicable law.

 

Investment financing

General Information

Polish bank law and related regulations are rather restrictive and conservative in comparison with most of other European systems and an investor may expect higher requirements regarding loan collaterals and debt coverage ratios. At the same time Polish bank system is competitive and efficient. What is more restrictive regulations kept the Polish bank sector healthy and almost intact by the Financial Crisis.

Common Issues

The main problems in financing start-up investments in Poland are connected to the lack of credit history and usually the mother company has to provide acceptable securities.

Main possible issues with financing process in Poland:

  • complicated decision process in Polish banks owing to hidden information,
  • relatively long decision process in the banks (depending on financing volume), which often causes a problem for short–term SOPs, considering customer demand,
  • mistakes in financial documentation (stable financial forecasting etc.) made by investors,
  • proper communication with bank authorities. Costs of local debt financing and additional requirements,
  • almost all banks require at least 25%–30% equity in the investment projects (as well as sets such as land, machines or other equipment),
  • the pricing is usually divided into a fix up-front fee between 1% and 2%, depending on the risk and effort of the financing project and a variable margin, which the bank adds to the Polish WIBOR/ LIBOR interest rate,
  • the total financing costs depend on the reliability of each customer, securities provided and the length of the financing period.

If the bank issues a positive opinion of a planned investment project (e.g. a factory) it requires special contract clauses to secure the repayment of the loan. These usually involve the mother company into the risk of the project.

Typical contract clauses are:

  • turnover clause,
  • debt restriction,
  • Pari Passu (subordination of loans from connected companies),
  • dividend clause,
  • financial indicators.

The main securities used by the banks for investment financing are:

  • mortgage on the real estate,
  • letter of comfort (companies with strong mother);
  • bank or corporate guarantee,
  • lien on movable objects (strong asset driven investment),
  • long-term fuel contracting (logistics companies),
  • contracts for about half of the sales value (logistics companies).

Following documents and information should be provided:

  • opinion about the customer´s credibility with information about offered securities,
  • information about mother company / group with an option to secure the loan within the group,
  • financial data and a professional business plan.

In order to achieve a positive opinion the investing company must prepare a professional business plan with all expected financial data for the project. The documentation is required by most Polish banks in Polish language.

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Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland.