During the congress, Marcin Mikołajczyk, Deputy Chair of the KNF, summarised the past year’s events. He gave an overview of the sector-specific priorities which affected, to various degrees, the area of retail banking in 2024.

Sector-specific priorities: summary 

• Priorities in bank supervision in 2024

Interest rate risk in the banking book: proper management of this risk was and still is a challenge to some banks.

Providing coverage for this risk is expensive and reflected in the costs of banking products, including for retail borrowers.

Concentration risk, including credit risk concentration and compliance with the concentration limits under the CRR.

Gradual reduction of large exposures may, in consequence, contribute to the release of capital which can be allocated to the financing of minor clients, including retail clients. 

Liquidity and funding risks

Mismatch in the maturity structure of assets and liabilities may lead to materialisation of multiple risks. We want to mitigate them.

• Current situation of the banking sector, including record high results

Profitability

After the first three quarters of 2024, banks generated over PLN 31 billion in net profit. This represents a nearly 50% year-over-year increase. High interest rates contribute to record high net interest income. 

Capital position

The sector’s capital adequacy ratios at the end of September 2024 stood at 21.2% (TCR) and 19.9% (CET1). With factors such as the consistent dividend policy the UKNF has pursued for many years, the sector’s capital position remains stable, despite last year’s increased total risk exposure amount due to credit growth and increased operational risk. 

Liquidity position of the Polish banking sector also remains stable.

For many years we have seen excess liquidity, expressed e.g. in the loans-to-deposits ratio which currently stands at approx. 61%. 

Dominant role of retail banking:
86% of receivables in the non-financial sector

89% of deposits in the non-financial sector

The situation of retail banking clients, i.e. households, has stabilised.

The two-digit inflation, which had a material impact on the households’ expenses, slowed down and its effects was partially neutralised with higher salaries.

Banks’ growing exposure to legal risk

Legal risk now represents the biggest risk to the profitability of the banking sector, and the mitigation of that risk is one of the major challenges facing the Polish banking sector. 

- CHF

The legal risk associated with the portfolio of foreign-currency mortgage loans has been one of the main risks in the banking sector for several years now, materially affecting the financial situation of banks exposed to it.

- Sanction of free credit

The legal risk associated with the possibility of applying the sanction of free credit is a relatively new risk compared to the risk associated with the foreign-currency loan portfolio Polish banks are exposed to. 

- Risk of questioning the reference rate

Another type of legal risk banks must face is the risk of questioning the reference rate. 

- Risk associated with high uncertainty as to Poland’s further economic outlook

This stems mainly from the international situation and Poland’s geographical location. 

Implementation of DORA

Just like any major change, this involves not only a review of organisational structures or internal policies but also the need to change the approach to the role of management bodies. In this case, the key active role in the implementation and adaptation of the risk management framework for digital operational resilience is to be played by management bodies. 

Preparation for changes under the CRR3
In a little less than a month we will be using a new method for estimating the capital to cover credit risk, with a limited use of advanced methods; there will also be many other changes. Banks will still have to deal with the operational aspect of the new approach to real estate valuation, and that means new requirements and related costs both for banks and their clients.
ESG

Starting from 2025, following the implementation of the CSRD into the Polish legal order, the ESG regime is to involve the sustainability reporting requirement, also for banks. 

Buy Now, Pay Later

This example shows that innovativeness in the financial market may bring positive effects but also generate certain risks. This is the case when the use of non-standard features of a product is designed to circumvent certain laws, for example laws on consumer credit. 

Adoption of the AI Act

We see our special role as the financial supervisor in this field due to the use of AI in credit processes such as credit scoring or creditworthiness assessment. We are monitoring and analysing how banks adapt such solutions and how such solutions affect the provision of traditional banking services.

Management of risk associated with selected banking products and services and product distribution

The assessment of banks’ adaptation to the supervisory rules and standards regarding the introduction of new products, the management of existing ones, and the management of product distribution will be one of the first priorities in 2025.

Long-term financing ratio
In July 2024, the UKNF completed the preparatory work and issued Recommendation on long-term financing ratio, which introduces the requirement to reach a certain level of the long-term financing ratio and, in consequence, will help mitigate the liquidity and funding risks, thus increasing the sector’s stability and security of deposits.

The banking sector is facing the possibility that its financing structure will change also in regard to retail clients, which may involve not only promoting long-term deposits but also developing new products such as covered bonds, addressed to retail clients.

Benchmark reform

The reform is now in the final phase, which will ultimately consist in selecting an alternative to WIBOR. This could also affect retail banking, though the preferred rate being the fixed rate or the NBP reference rate.

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The macro-economic and regulatory environments bring a series of challenges to the banking sector, both the known and totally new ones. The supervision authority is actively involved in the identification of those areas and supports the sector in choosing the best path. The supervisor’s perspective on the challenges the market faces may become a starting point for further discussions on the opportunities for safe growth of the banking sector. 

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