Wielkopolski Bank Kredytowy (WBK), the Polish bank which is 60 per cent owned by AIB, will continue to expand rapidly as a regional bank in western Poland. But profit growth this year will not reach target levels. WBK had targeted growth of 19 per cent in profits after tax to 187 million zlotys (£37.4 million). However, moves by the Polish central bank, the National Bank of Poland, to curb credit growth will reduce net interest income and slow WBK profit growth this year.
This week the central bank announced a controversial plan to take customer deposits, offering an interest rate two percentage points above the normal retail bank saving rate. Earlier this year, it announced several increases in the non-interest-earning reserves that retail banks must hold.
The moves are aimed at cooling down an overheating economy where personal lending is growing too fast. Last year, personal credit growth rose by 106 per cent, bringing with it an increase in Poland's trade deficit as demand for imports rose and the danger of an increase in inflation. While the rate of growth has slowed this year - WBK lending is growing at about 50 per cent - it is still growing too quickly.
This week, the central bank offered personal savers interest rates of 21.5 per cent for six months and 22.5 per cent for nine months, with a minimum deposit level of 3,000 zlotys (£600). The central bank aims to take between one and two billion zlotys out of the market. With the minimum deposit level equal to three times the average monthly salary, bankers say the move will slow down deposit growth this year. But they say it is unlikely to affect existing deposits because most deposits are fixed term contracts with interest loss penalties if they are broken. The central bank move is understood to be largely aimed at taking in cash that people do not lodge in banks. Poland is under-banked - with just 300 bank branches per one million of population. The central bank move to take in deposits follows its moves this year to raise the obligatory reserves levels that retail banks must hold in cash and place interest free at the central bank.
For WBK, this increase in reserve levels means the bank will earn no interest on about 10 per cent of its funds. Overall, these moves, together with an increase in costs due to rapid branch expansion, will mean that WBK will not meet its profit growth targets for 1997. A further significant factor, which will prevent the bank reaching its targeted profits, is the deferral until early 1998 of the sale of an investment planned for this year. Against a target post tax profit level of 187 million zlotys, or 19.2 per cent growth for the year, WBK has generated a growth of 2 per cent to 108.7 million zlotys for the eight months to the end of August. However, on other measures, WBK is proceeding on target. Performing loans as a percentage of total loans was 93.5 per cent at the end of August against year-end target of 94.6 per cent and an end1996 level of 92.4 per cent.
Its net interest margin was 6.2 per cent at the end of August, ahead of its 5.9 per cent full-year target. Return on assets for the eight months was 2.9 per cent against a full-year target of 3.1 per cent. The cost/income ratio was 48.7 per cent against a full-year target of 47.4 per cent, reflecting a bank at a stage of rapid development. With a market capitalisation of 1.5 billion zlotys, making it the fifth-largest company on the Warsaw Stock Exchange, WBK plans to continue to expand its 141 branch/office network by acquisition and by opening new branches. Some 40 branches will be added by the end of 1998 - mostly low-cost sales outlet in residential areas and supermarket branches.
In the short to medium term, WBK plans to stick to its core Wielkopolska area and regions north and south of it rather than becoming a national bank with offices throughout Poland.
WBK is a strong regional player in its core market, with 20 per cent of deposits and 22 per cent of loans in the second-most prosperous region in Poland. Growth at WBK will be based on expanding personal and small to medium business lending, developing new products and expanding in the investment banking, asset management and insurance markets.
Through its 10 per cent stake in the Commercial Union company in Poland, WBK has access to the life assurance market where only one million of the 39 million population has life assurance. It has a 60 per cent-owned general insurance subsidiary.
The challenges facing WBK include developing suitable information technology and control systems, modernising product and service delivery to customers, increasing efficiency and reducing costs.
With about 5,000 employees, WBK faces the challenge of ensuring strong income growth so that its cost structure will be able to withstand external competition after 1998.
