The end of the banking Eldorado. The head of the Polish Bank Association is worried about the profits of banks

The result of Polish banks depends to the greatest extent in the European Union on the interest income. If interest rates fall, banks' profits will decrease accordingly - Tadeusz Białek, president of the Polish Bank Association, told PAP.

The Monetary Policy Council (MPC) will decide on interest rates at a two-day meeting starting on Tuesday. Currently, the NBP's main interest rate, the reference rate, is 5.75%. The MPC has maintained it at this level since October 2023. The banking sector's net financial result in 2024 amounted to PLN 42 billion.

The possibility of lowering interest rates in the near future was indicated by NBP President Adam Glapiński during a conference after the Council meeting in early April. He assessed that this could happen in May, June and July. Economists agree that interest rates will fall. This would be good news for some borrowers - the lower the NBP rate, the lower the loan installment.

The President of the Polish Bank Association, Tadeusz Białek, emphasized in an interview with PAP that the financial result of Polish banks depends on the interest income to the highest extent in the European Union.

"So if rates fall, bank profits will also fall significantly," he added.

The head of the Polish Bank Association pointed out that banks in Poland build their capital, necessary to finance the economy, exclusively from profits.

"We have no foreign investments, we have no other way as banks to build capital than to allocate part of the profit. So there will also be less funds allocated for capital and less potential for financing the economy from the banking sector. The banking sector is responsible for 87 percent of financing all economic ventures," he noted.

He recalled that in Poland, interest rates are currently among the highest in Europe – only Romania and Hungary are higher. Currently, the main NBP interest rate is 5.75% and Białek assessed that its level significantly affects the price of credit at the moment.

"What does the interest rate on mortgage loans consist of? It consists of the reference rate, which is reflected by the reference indicator, plus a margin. The main cost of the loan is the reference rate of 5.75%, and in addition there is a margin for mortgage loans at the level of 1.67%. So if interest rates fall, the price of the loan should also fall," assessed the president of the Polish Bank Association.

He admitted that the mere announcement of lower interest rates caused the value of the WIBOR reference rate to fall. It has recently fallen by about 50 basis points. So the price of credit should certainly fall in the event of a drop in interest rates.

"We at the Polish Bank Association estimate that by the end of the year we can expect a reduction of about 1 percentage point. This will have a significant impact on the banks' profits. They will be significantly lower than those achieved last year. Each reduction will affect the banks' profits, because the profit of banks in Poland is mainly the profit resulting from interest," Białek said.

The President of the Polish Bank Association also indicated that people considering taking out a fixed-rate loan should postpone their decision for a while.

"In Poland, on average, we have a fixed rate for 5 years. This protects customers against sudden increases, especially in interest rates. It might be worth holding off on taking out a loan with a fixed rate, because if experts expect interest rates to fall, then after they drop, the customer will be guaranteed that this lower interest rate will be maintained for several years," said Tadeusz Białek.

The high interest rates that have been in force for over two years are definitely slowing down the development of the mortgage market and the development of the housing construction market, Jacek Furga from the Polish Bank Association (ZBP) told PAP.

The Chairman of the Committee for Financing and Real Estate at the Polish Bank Association, Jacek Furga, pointed out in an interview with PAP that for over two years high interest rates have been significantly slowing down the development of the mortgage market and residential construction.

"More on the side of individual customers than on the side of developers themselves," he noted.

The expert assessed that developers use bank loans moderately and that, as a rule, this industry finances its projects from current payments from customers. For developers, bank loans are treated as a certain supplement and security for the continuity of financing of development projects.

"High interest rates have less of a negative impact on the number of investments and the pace of their implementation, because, as the results of the development sector in previous years showed, approximately 200,000 apartments are delivered each year. There were 236,000 in 2021, 200,000 a year later. In 2024, there were slightly fewer apartments delivered, but this was due to concerns about whether buyers would appear for these newly built apartments, because these high interest rates have a much more negative impact on individual customers who do not have the appropriate creditworthiness to obtain such a loan and buy apartments with it, especially since apartment prices are also rising in the meantime," Furga said.

In his opinion, participants in the housing and development market are "longingly waiting" for interest rate cuts. He recalled that until recently the president of the National Bank of Poland negatively assessed the chances of interest rate cuts. However, the expert noted that "something has changed recently".

"The first signs are that the first cuts may come in May or even as early as May. Even a symbolic cut of 25 basis points would have a disproportionately greater effect than the financial effect alone, as it would create a chance for further cuts in the next few months," Furga said.

He noted, however, that the drop in interest rates will not translate overnight into lower interest rates on loans, but it will affect the WIBOR rate. Since this rate will fall, the cost of refinancing for banks will be lower, so banks "will also be able to lower their interest rates."

"Such a quick calculation is for an average loan of PLN 500,000, because this is currently - in the opinion of our analytical office - the value of the average loan. A reduction by 50 basis points, i.e. by half a percentage point, will bring the borrower savings of over PLN 200. This is already a measurable amount of money and I think it would be a big incentive, and each subsequent reduction will make the loan even more attractive," indicated the ZBP expert.

He added that the reduction in credit costs will also cause developers to start building more apartments. He noted that this is not about the impact of credit costs on the profitability of development projects.

"As experience shows, the share of financing costs in development projects is 6-7, sometimes 8 percent, so they do not have a major impact on the final cost. For developers, the main impulse is whether an individual customer can afford it, whether they will have the capacity, whether they will get a loan and whether they will be able to buy the apartment from the developer," Furga emphasized.

He assessed that "lowering the basic interest rate to the level of 3.5-4 percent plus margin is already the level of attractiveness when developers will reach for further building permits and launch further investments, because they will be sure that there will be buyers for these new apartments."

In his opinion, the interest rate cut will also be important for people who have already taken out loans with a temporarily fixed interest rate. Furga recalled that the Polish Financial Supervision Authority issued a recommendation on changes to the terms of such loans in June 2023.

"According to this recommendation, if rates fall, banks will be able to offer borrowers new credit conditions, based on a lower but still fixed rate (...) So the mechanisms are there, banks will have the green light to lead to such a change and I think they will be interested in such a change taking place for their clients in this bank, so that the client does not have to look for an alternative in a competing bank," said Jacek Furga. (PAP)

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