June 03, 2019

IMF published, under the Financial Sector Assessment Program (FSAP), a technical note on cooperative banks and credit unions in the Republic of Poland. The technical note reviews the situation in cooperative bank and credit union sectors, both of which are in states of transition; the regulatory and supervisory arrangements; and the safety net and resolution regime within the context of the crisis management framework. The note also offers perspectives on the sustainability of institutional models and these sectors within a modernizing and competitive banking sector.

The note highlights that most cooperative banks and credit unions are stable, but each sector has its own issues. The FSAP is broadly supportive of the policy direction for cooperatives, while it questions whether the credit union sector should remain standalone. Combined, cooperative banks and credit unions represent less than 8% of deposit takers, though more importantly they serve about 18% of the population. The overall situation of most cooperative banks is that they remain well-capitalized, with moderate levels of non-performing loans (NPLs) largely in line with the overall banking system, though with weak profitability. The NPLs are noted to be higher among larger cooperative banks, which represent about 65% of the cooperative bank sector assets. A vast majority of cooperative banks meet the regulatory capital requirements but raising capital from members or external sources, when needed, is complicated by applicable regulations and the dividend policies of cooperative banks.

Despite improvements in recent years, the performance of credit unions and the quality of their financial information is not yet satisfactory. Since coming under the supervision by Polish Financial Supervision Authority (PFSA), there has been some improvement in the credit union sector mainly due to the resolution of nonviable credit unions and better performance of the remaining entities. These improvements, however, are not sufficient to reverse the deterioration in the system thus far. The capital adequacy of the credit union sector at the end of January 2018 remains below the regulatory minimum of 5%, reflecting the troubled situation of larger credit unions. The source of low capital adequacy has been losses from poor loan underwriting and a series of past mergers that were allowed without addressing viability issues.

The technical note contains a table that summarizes several key recommendations to authorities in Poland. These recommendations relate to supervision and reforms in the cooperative bank and credit union sectors. The key recommendations with respect to supervision are as follows: 

  • Strengthen the supervisory capacity of PFSA by increasing (at least during a transition period) the available resources to oversee the cooperative banks and credit union sectors.
  • Strengthen the quality of the Institutional Protection Scheme internal control and audit practices to align with PFSA supervisory requirements. Moreover, each affiliating bank should meet higher capital requirements.
  • Revise the reporting requirements and supervision methodologies for cooperative banks and credit unions to ensure proportionality as far as feasible under applicable EU regulations.
  • Evaluate the definition of criteria for auditors of the different institutions; if feasible, establish a short list of qualified auditors for the different types of entities, considering their complexity.
  • Further enhance the monitoring by the Institutional Protection Scheme, align methodologies with PFSA.
  • Further enhance the monitoring of all cooperative banks—including through a shortening in the supervisory inspection cycle—until relevant capacity is established in the Institutional Protection Schemes.
  • Identify additional cooperative bank capital instruments that are compatible within the EU Capital Requirements Regulation or CRR.
  • Unify accounting standards among sectors and institutions.


Related Link: Technical Note


Keywords: Europe, EU, Poland, Banking, FSAP, Technical Note, Credit Unions, Cooperative Banks, PFSA, Proportionality, CRR, IMF

Related Articles

BIS Report Discusses Regulatory Issues Related to Big Techs in Finance

BIS has pre-released a chapter of the BIS Annual Economic Report; this chapter focuses on the risks and opportunities presented by large technology firms in the financial services sector.

June 23, 2019 WebPage Regulatory News

IOSCO Report Examines Liquidity in Corporate Bond Markets

IOSCO published a report that examines the factors affecting liquidity, under stressed conditions, in the secondary corporate bond markets.

June 21, 2019 WebPage Regulatory News

FED Publishes Results of the 2019 Stress Tests for Banks

FED published a report presenting results of the Dodd-Frank Act Stress Test (DFAST) exercise for 2019.

June 21, 2019 WebPage Regulatory News

BCBS Report Examines Global Pillar 2 Supervisory Review Practices

BCBS published a report that examines the Pillar 2 supervisory review practices and approaches in Basel member jurisdictions.

June 21, 2019 WebPage Regulatory News

IASB Publishes Work Plan and Meeting Updates for June 2019

IASB published an updated work plan and a summary of its June meeting, which presents preliminary decisions of the Board.

June 21, 2019 WebPage Regulatory News

HKMA Publishes Banking Exposure Limits Code Under Banking Ordinance

HKMA issued a circular to all authorized institutions informing that the Banking (Exposure Limits) Code has been published in the Gazette on June 21, 2019.

June 21, 2019 WebPage Regulatory News

OSFI Proposes Guideline on Internal Model Oversight for Insurers

OSFI proposed the draft guideline E-25 on the internal model oversight framework for federally regulated property and casualty (P&C) insurance companies.

June 21, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: Third Update for June 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published one answer regarding the calculation of institution-specific countercyclical capital buffer rates.

June 21, 2019 WebPage Regulatory News

BCBS Publishes Summary of the Meeting in June 2019

BCBS published a summary of its June meeting in Basel.

June 20, 2019 WebPage Regulatory News

OCC Bulletin on Risk Management Guidance for Home Mortgage Lending

OCC published Bulletin 2019-28 on risk management guidance for higher-loan-to-value (LTV) lending activities in communities targeted for revitalization.

June 19, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3298