IMF published a report on the results of the Financial System Stability Assessment (FSSA) on Republic of Poland. Also published were the staff report and the selected issues report under the 2018 Article IV consultation with the Republic of Poland. The FSSA report highlights that the banking system in the aggregate shows resilience to adverse shocks, although some medium-size banks appear weak. Stress tests suggest that, in an adverse scenario, the solvency ratio for the system of commercial banks (common equity tier, or CET, 1) declines from 16% to 13% of risk-weighted assets, driven by loan-loss provisions, valuation losses on debt securities, and funding and interest rate risks.
The FSSA report notes that some medium-size banks would come under solvency pressure with a small recapitalization need of about 0.5% of GDP. Cooperative banks are also exposed to credit and concentration risks. Important shortcomings were identified in prudential oversight, reflecting budgetary constraints and a governance framework that compromises operational independence. A new law that will be in force in early 2019, while making it more likely that additional financial resources will be available, makes governance changes that will further weaken independence of the Polish Financial Supervisory Agency (PFSA); consequently, reform is still incomplete relative to the need for independent supervision and regulation functions. Banking regulation and supervision are largely in line with the Basel Core Principles, with a need to enhance the approach in some areas. The EU Single Rulebook, including the capital requirements package, is in place, with the Single Supervisory Mechanism (SSM) and EBA being key partners of the PFSA. The report also mentioned that implementation of the EU Solvency II Directive in 2016 has strengthened regulation and supervision through new risk-based capital standards and comprehensive group supervision.
The report states that the macro-prudential policy framework is sound, though untested. The authorities have activated capital buffers for other systemically important institutions (O-SIIs) and systemic risk, which are in addition to the permanent capital conservation buffer. In time, areas of increasing challenge will include a rising share of non-bank activity in the overall financial sector and growing consumer credit exposures that may merit deployment of the macro-prudential toolkit. Arrangements for crisis management are generally sound, although measures are required to strengthen the independence of the Bank Guarantee Fund (BGF) and powers of the PFSA. The recent implementation of the Bank Recovery and Resolution Directive (BRRD) enhanced the powers of BGF and PFSA to deal with failing banks and the authorities have taken appropriate steps to be prepared to deal with systemic distress and crisis in practice. However, PFSA should be empowered to undertake insolvency assessments, without the need for a third-party opinion. Additionally, the bankruptcy framework should be improved to allow for timelier action. Current exemptions from the requirement to prepare recovery plans for the banks that are subject to rehabilitation plans and for the two affiliating banks are inappropriate.
The staff report highlights that the Directors welcomed the finding of the FSSA that the aggregate banking sector is resilient to adverse shocks, but noted that weaknesses are present in a few small and mid-size banks. Given the sharp decline in foreign currency-denominated mortgages, Directors did not consider them a systemic risk and recommended that any restructurings proceed through voluntary bilateral agreements. Directors underscored the importance of ensuring sufficient resources and operational independence for the Financial Supervision Authority.
Keywords: Europe, Poland, Banking, Insurance, Securities, FSSA, FSAP, Stress Testing, Systemic Risk, Macro-prudential Policy, Article IV, BRRD, PFSA, IMF
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