Are banks robbing Poles?

In a unbalanced situation on the market there should intervene a financial regulator, i.e. the Financial Supervision Authority or the government and make appropriate provisions. In Spain, for instance, the authorities ordained that long-term credits couldn’t be given at floating interest rates – says Błażej Podgórski, PhD, expert in finance and economy, lecturer in the Department of Finance at Leon Koźmiński Academy.

TVP WEEKLY: Before we get into detail I need to ask in general: what’s a bank and how does it operate?

: It’s a company that is regulated by the state in a specific way for an economic safety. That’s because it deals with cash flow but it also generates money thanks to minimum deposit rate. Banks’ main cost is to raise capital. It may do so thanks to deposits which are bank accounts and investments. Another method is by borrowing this money from other banks. Finally the third is to acquire it from the central bank.

What does the bank make money on?

These are all the possible charges, additional insurances, payment cards. But the main source of profit are of course credits and trading on capital markets. From this funds it supports all its additional services like mobile applications.

Where does the overliquidity or, to put it straight, the excess of cash in our banks come from?

We shut down the economy due to COVID-19 and we implement anti-crisis shields. Only we don’t have money for them. That’s why we resort to printing extra money. The economy is unable to absorb this cash. The upcoming crises results from this very printing.

In other words, the emitted money de facto ended up in banks?

Precisely. Of course all those anti-crisis shields were directed to entrepreneurs. Only no one received these means physically. They were transferred to bank accounts, weren’t they? When an entrepreneur was paying his employees, they also did it by transferring the money to subsequent bank accounts, this time – to individual and private ones. How many people keep their savings under the mattress? The whole circulation of money is carried out by the banking system.

There is titanic amount of cash in banks. At the same time, the bank itself creates money. For the total amount of granted loans granted is much higher than the cash accumulated in the bank.

This is technically known as the minimum deposit rate. That is to say the amount a bank would have to keep in its vault if all its customers came and demanded their cash. In Poland, the required reserve ratio is 0.5%. The easiest way to show it is to use the example of PLN 1 million: When we pay PLN 1,000,000 to the first bank, the reserve for this amount will be PLN 5,000. And this is what the bank pays to the central bank. Therefore it has PLN 995,000 left. When it grants such a loan again, and its recipient pays the entire amount to another bank, that bank pays PLN 4,975 to the central bank. In this way, from PLN 1 million, the bank can grant loans for 200 million zlotys.

So, in practice, every bank creates “empty” money.

Yes, but used to stimulate economic growth.

SIGN UP TO OUR PAGE Let’s assume I am the owner of a company producing screws: I have to build a production hall, I have to invest in machinery, I have to purchase raw materials for production, I have to hire employees, engineers and finally I have to produce a physical product so that someone can screw these bolts into their door. I have unimaginable costs and enormous risks at every level. I will never manage to make PLN 200 million from PLN 1 million in such a short time. Meanwhile, the bank fictitiously creates 200 zlotys from every zloty paid by a human and sells me “the air”.

Only it necessary to assume that not all borrowers will return the borrowed capital. Let’s imagine that a bank grants a loan of PLN 1 million. The Annual interest on this will amount to 60,000 zlotys. That is the bank's profit. If they grant 10 such loans, they have 600,000. PLN profit. It is enough that one of them does not pay back and the bank has 400,000. PLN loss.

But banks are masters: first in securing loans, secondly in analyzing our creditworthiness. After all, there are very few bad loans, below 1 percent.

But when you find such an insolvent client, you can’t do anything with them for a longer period time. Bailiff auctions and other forms of debt collection are extremely time-consuming. That is why companies such as Kruk are thriving on the market.
SK Bank in Wolomin went bankrupt after the collapse of the real estate company Dolcan. Photo by Marek Wisniewski / Puls Biznesu / Forum.
Of course, banks minimize their risk. They are generally very profitable companies, but they can also slip up. We only think about the product which is a mortgage. But banks also provide loans to enterprises. The collapse of such a great developer as Dolcan entails the collapse of the bank. Banks have to calculate their risk in the long run. How many Swiss franc loans have been canceled? After all, this is an evident loss of the bank.

It was the banks themselves that offered these loans. We had a choice of either a loan in francs or no loan.

But why does this man not reflect on the risks associated with it?

Excuse me, but the requirement that society as a whole be experts in economics and banking is frivolous. Not everyone who wants to take out a loan for an apartment will follow the macroeconomic situation in the world a year earlier. Don't you think that in Poland all the risks are transferred to the consumer? Anyone who knows what WIBOR is, what are the hidden additional costs, what is the policy of the Polish Central Bank. In other countries, the security of the customer and the risk of default is also spread over the banking corporation. We are a promised land for the banks.

I will use quite brutal words. Among the frank borrowers there are both smart and conscious people and those more naive.

An example that I give to 1st year students: imagine a typical Janusz [average Pole] from memes. It is 2006. Janusz sees that the Polish economy is in full bloom. Swiss franc costs 2 zlotys. He goes to 3 banks, where they tell him: Janusz, you will not get a loan with your income. But he finds a fourth bank where they say to him: Janusz, my friend! I am a real Pole, you a real Pole! How could I refuse to help you? Of course, you will not get a loan in PLN, but in franc it is even 110%!

The previous one refused me, and here my homie gives me right away. So the other ones are thieves and scammers, because you actually can get a loan. So he starts to think more and more and thinks – this is Switzerland – what are they producing there? Some watches, chocolate, cheese, but smelly. And how about us: we are a power in the European Union. We will be doing the European Championship soon. So I will sit on the couch, watch the matches, open a beer – it will be fine. And so he lives carelessly.

Frank reaches 3 zlotys and Janusz says: temporary problems. We are a power, not like Switzerland, of which one doesn't even know where it is. Frank goes up to PLN 4. Janusz says: banks are thieves! For 10 years, he had not considered which of these economies is stronger?

Of course, this is an exaggerated picture of a naive person, but there is one rule: if you don't understand how something works, don't use it.

You are expecting the common man who simply wants a roof over his head to be interested in the economic situation in the world. I would like you to answer me: should the consumer take most of the responsibility for bad credit and bad transactions?

But what are most of the responsibilities? Is signing a variable rate loan agreement the majoritary responsibility?

Yes. The entire risk is then passed on to the consumer. In the case of a bank, the risk is zero. Its only risk is that the client will become insolvent.

This is the greatest risk!

This is not the greatest risk, because for a bank it is one of a million customers and a row in Excel. For a bank it is nothing, and for this man it is his whole life. In Western Europe, this risk is spread.

But only after the 2008 crisis, when a great deal of people actually became homeless. There are also derivatives there that you don't see. For example, swaps, i.e. transactions by witch financial institutions hedge against the risk of changes in the interest rate, exchange rate and a number of other risks.

Twelve years have elapsed and there were lessons learned from the impunity of the banks. Not the same here.

We have not experienced such a tragedy and such a deep crisis, what is more, our system is much better protected.

You still aren’t answer my question: Should it be the client who bears the entire credit risk?

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The customer is alone responsible for the interest rate risk.

Well, this is the greatest risk!

The client could take a loan with a fixed interest rate.

He could not take it because in practice there were no such loans available on the market.

After all, he had the option to freeze the interest rate for 5 years, which in practice is the same.

How could he know about this? You are shifting the whole thing to the client. He is to come to the bank and know how the financial markets work, how the Financial Supervision Authority (KNF) and the Central Bank (NBP) work. Do I need to know the car mechanics when buying a car to drive to work?

This is probably what the subject of “entrepreneurship” at school is for. You do not have to know the entire mechanics, but you must know that you pour oil into a diesel, when the water / oil temperature rises, you have to stop, and when the so-called Aladdin's lamp lights up, you need to call a tow truck.

I don't know how to get this opinion from you, so I'll try to ask the question differently. If you, purely theoretically, became the head of the Polish KNF, would you force banks to sell loans with fixed interest rates and assume the credit risk?

This could be one solution. Another one is to impose an obligation on banks to sell insurance in the event of a change in interest rates. The insurer is better prepared for such situations than the bank.

You blamed the NBP. And I think that banks are very smart. Because when the chairman Adam Glapiński raises interest rates, banks are raising loan installments in an instant. At the same time, they are not so eager to raise interest rates on deposits. Until recently, there were deposits at the level of 0.01 percent. I understand that everyone wants to maximize profits, but this is impudence.

I can agree on that. The lack of symmetry is a problem. Banks take advantage of the situation because the demand for loans is still high. In a unbalanced situation on the market there should intervene a financial regulator, i.e. the Financial Supervision Authority or the government. You can create an ordinance or an act that will link the term deposits with WIBOR. In Spain, for instance, the authorities ordained that long-term credits couldn’t be given at floating interest rates.

All these data having been considered, one question arises: Are banks robbing Poles??

Banks are institutions of public trust, but because they hold our money and not so as not to generate profit. So if there is potential for it in the market, why not to generate profit? Anyone operating in the free market wants to make a profit. Nobody works for free.

Is it really a free market? This is not a neighborhood cafe. To open a bank, you need a gigantic capital.

There are over a dozen banks in Poland and they are competing with each other.

Frankly speaking, I did not notice this competition. Let us take the most pressing problem of Poles today: mortgage loans. The offer is almost identical in all these banks, isn’t it?

It is very similar indeed. The starting point for banks is the rates fixed by the central bank.

You asked whether the banks were robbing Poles. If someone thinks their bank loan is too expensive, they don't take that loan. It's just like cherries. When there were 250 zlotys a kilogram, people stopped buying cherries.

Only if I don't buy cherries, I will somehow – with enormous grief and pain – I will survive it. In this case, however, I have a different choice – I will either buy a flat or be homeless. Cherries and the roof over your head is not the same product.

I will perhaps kill you with my answer, but I think it is exactly the same. In Poland, de facto, we do not have a problem of homelessness.

Maybe not of homelessness, but the number of adults who live with their parents has increased over last year by 172 thousand people. This problem affects 47.5 percent of our countrymen aged 25-34. Half of Poles live with their mummies in order not to be homeless.
When cherries appeared on stalls at 250 zlotys a kilogram, people didn’t want to buy them. Photo: Dawid Tatarkiewicz / Forum
They live with their parents because they earn too little. Western Europeans have long since come to terms with this state of affairs, they live, rent apartments not always in the city centre. In London, a commute of 60 minutes is standard.

We are having this chat at Gałczyński st. near Nowy Świat in Warsaw. The apartment that we can see from the restaurant's window costs PLN 2 million. How much would this 30-year-old have to earn to buy a flat here? And I understand that you will say that it is the very center. So let's take my hometown Suwałki – a district town in the middle of nowhere. There, the purchase and finishing of the apartment is approx. 600 thousand zlotys. Even if I earned 20,000 in Suwałki. PLN per month, I am not able to buy this apartment for cash. I am stuck with the bank and its loan.

You can rent an apartment.

Renting a flat also means paying off a loan. And not your own, but someone else's. So we still come back to the topic of the bank and its mortgage offer. It’s not that I can’t not buy an apartment.

I will not agree with you again. You are assuming the erroneous thesis that everyone must have an owner-occupied apartment. Residents of Sweden, Germany, Norway and France rent flats. You are a young man and you look from the perspective of the X or Y generation, and not from the perspective of Z, which wants to move, travel, change locations. Many people prefer to rent, if only because they can live in better neighborhoods. If someone does not earn enough to get creditworthiness, then they should look for a rental option.

But this rental will cost him exactly the same as paying off his own loan installment. The only difference for him will be the fact that he will not be the owner.

If someone cannot afford something and does not understand how the capital market works, then they shouldn’t purchase it. Warren Buffet once said that he doesn’t invest in something he doesn't know or understand.

You are talking about an apartment as an investment of a multimillionaire who does not know what to do with the money. And home in Maslow’s hierarchy of needs is the most basic necessity of life. Do you think that if someone has not earned a flat or cannot afford it, then they shouldn’t have a flat?

[Silence]. That's the way it is all over the world. It may seem terrible, but I think so. Besides, the need is not to have a flat, but a place to live.

Tough but honest. Let's take on another problem: we have the highest mortgage loans in the entire European Union. The differences are gigantic. Poland 7%, Finland less than 1%.

This is because we have the highest reference rate in the European Union and the highest inflation in the European Union. It also depends on WIBOR, i.e. the interest rate at which banks lend money to each other.

You know perfectly well that these transactions between banks are practically non-existent. There are a few in a month, and there were times when there wasn't a single one. It is an artificial creation which in practice is a second margin for the bank.

So now I will ask you questions. Do you have a car? And if so, then what it is?

I have two. An Audi and Chevrolet Camaro.

This will be a great example. The demand for this type of car is extremely small. Your few-year-old Camaro is now worth approx. 200 thousand zlotys. This is the transaction price. Someone may be tempted to give it back cheaper, but overall it's the price, and that's how much it is now worth.

Only I can negotiate the price of the Camaro, while I am not able to negotiate with the bank, because I will either take the “credit product” that they put under my nose, or goodbye.

You can negotiate with banks. You just need to know when to come to them. Each bank has its sales targets imposed from above. And if you come at the end of each quarter when the bankers have unmanageable targets, they will be very happy to get off something. You will negotiate, for example, a lower initial commission or a slight margin. These are the bank's real profits.

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These will be such small amounts that they will not be noticeable with a loan of half a million.

There is a greater demand for credit than banks’ possibilities.

That is why I will never be equal to a bank. The free market is when I am equal to my contractor. I am not even dust compared to an international banking corporation.

I would not like us to assume that a priori banks are bad. We have a free market and it will verify everything. Should people suddenly find that they will not take loans, the banks will be forced to lower their price. 3 months would be enough.

It is impossible! Do you know a situation in the 30-year history of contemporary Poland that all of Poland, 40 million Poles plus companies, got along with each other and didn’t take loans for a quarter?

Your assumption is that loans are too expensive today. And I think the opposite. That recently the price of credit was artificially lowered by the policy of central banks in Europe. By keeping interest rates very low. And I’m not just talking about the NBP, because everyone in Europe made the same mistakes. Each government wanted to heat its economy as much as possible.

Until recently, about 80 percent of the banking market was in the hands of foreign corporations. Was it good or bad?

It doesn't matter. What matters is the fact that the largest Polish banks with state capital mainly focus on the Polish market. Because we may then have problems with a closed economy. This is the answer why the Germans, French and Italians do not want to impose sanctions on Russia. That’s because their banks lent the Russians huge amounts of money by buying their bonds. So if Russia doesn’t buy its bonds, it will be a German problem, not a Russian one.

The Greek crisis solved by German banks only because their banks also had Greek bonds and a collapse of Greece would mean huge losses in Germany. In the case of operating only on one market, our banks have the entire risk spread over one market.

Can you really imagine a PKO Bank Polski entering the German or French market? After all, the counterparts there are exorbitantly larger. In addition, there is the hermetic nature of the market, and even economic chauvinism in relation to Eastern Europe.

It is true that even Orlen had problem breaking through with our western neighbors and for years operated as the German brand Star. Though it is in a way a question of PR. If PKO entered the German market and offered an above-average offer to the Germans, it would surely find customers.

It doesn't have the capital to enter a huge and organized market, does it? And also with dumping prices. This is lethal for the entire company.

Let it start with smaller markets. For example, the Baltic countries. Lithuania is the population of our single province, but this is how the expansion begins. From small markets. But you asked about capital in our market. It doesn’t matter if it’s private, state or foreign. It is important to be distracted. If it is accumulated by more than 50 percent in one hand it's very bad. For example, if half of the market belonged to one large entrepreneur and it would set up their boards, it would be unfavorable for the market.

In aforementioned Spain there are provisions saying that foreign entities may not hold more than 10 percent of the market. The rest is Spanish capital.

But it is capital dispersed between the private sector with different owners and the public sector.

There are practically no Poles on the supervisory boards and management boards of Western banks operating in Poland. Can you imagine a Pole being the president of a bank in France?

There is no chance of that in France. Due to the specificity of the French culture, a person who is not French in practice cannot hold a managerial position.
A demonstrator dressed as a symbolic banker during a protest against the banking system in Paris, February 2016. Photo by Charles Platiau / Reuters / Forum
A6 Is it about culture? Because in my opinion the worst manifestation of extreme chauvinism.

It is about culture. As in Japan, the same family has to manage the company. That is why 40-year-olds are adopted in Tokyo as companies’ CEOs. So that, for example, Mitsubishi or another corporation would be in the hands of one family. And so it has grown culturally that a Pole or a Slovakian will not become CEO upon the Seine. And why is this not the case with us? This is a question for ourselves. We did not create such habits and such a culture. The French have created it over the last 300 years of building their entrepreneurship. And we were getting booty at that time. Partitions, wars, later communism.

You avoid calling it chauvinism or extreme nationalism at all costs.

Why should I call it that? Why was a Pole to manage a French company?

And why do French manage a Polish company?

They manage a French company operating on the Polish market.

Then why do we make our market available to them, and they don't necessarily share theirs with us?

We sell our market to them because we are poorer. This is the paradox of the poorer.

Savage privatization of the 90’s had nothing to do with win-win business principles. We didn’t even privatize. We were giving away – often for almost nothing – entire sectors and entire markets. In this way, Western companies got rid of competition.

If we look at privatization in Poland in general, we have been doing it largely unconsciously. The banking sector itself was already privatized with greater market awareness. Some institutions remained in the hands of the Treasury to control the market.

We did not realize how companies are valued. On the one hand, we dealt with extremely experienced Western businessmen who were well trained in these activities, and on the other hand, there was a small country in Central and Eastern Europe. We had property, but we were not aware of its true value.

A simple example: every state-owned enterprise in the People's Republic of Poland had its own hotel. And during the privatization, we did not appraise this hotel at all. And someone would come and cut this business to pieces, earning money on individual branches. This is perfectly portrayed in the movie “Pretty Woman”. At that time, we agreed to everything, also due to hyperinflation and budget shortages.

You are talking about a lack of awareness among our elites. Was it really just a lack of awareness?

Everyone would like to believe in a conspiracy theory of history, but this “savage privatization” took place due to a lack of knowledge and market experience. I wouldn't be talking about any bribes or swindles. Enterprises have been mispriced and that is a fact. We were too stupid then. But stupidity is not punishable by law.

In the entire country of 40 million people, wasn’t there a single person who would have known how Western economies worked?

We had a Stalinist education and economic thought from the Soviet Union. Today, company valuation experts are also not a large group, maybe I would count 30 experts with an experience over 100 transactions... This group will always be narrow in Poland, because the market does not need so many experts.

Pekao was bought by the Italians for PLN 4 billion. After deducting all taxes, they earned around PLN 17 billion here.

You need to look at it more broadly. It is always a deal-deal. We sold Pekao to UniCredit, but thanks to this, we also had a factory od the Italian Fiat in Poland. This is not talked about, but these are bundled transactions. We have to look at them in context.

An example outside my industry: safeguarding vital public interests. Two companies were interested in it during the privatization of FSO. Volkswagen and Daewoo. The first one did not agree to a job guarantee, and the Koreans made such assurances.
Janusz Szewczak, an economic analyst associated with the right, once calculated that our country lost around PLN 200 billion on the privatization of the Polish banking sector.

I'm curious about the methodology of counting and how to come to such conclusions. After all, this is almost half of our state budget. Or 10 percent of GDP. There is also a lot of talk about transferring profits abroad. But such calculations can only be discretionary, because it is impossible to calculate it precisely. I would never dare to make such calculations. Besides, I do not agree with Szewczak, because despite profits, the stability of the key sector, which is banking, is also important. And Western companies introduced innovations and know-how.

In my opinion, privatization contributed to the development of both our economy and entire Poland. I do not deny that there was also looting and bad evaluation of state-owned enterprises, but in the case of the banking sector, I do not see any irregularities. I am an advocate of transformation and privatization, I believe that this is the best thing that could have happened.

– interviewed by Karol Wasilewski
–translated by Dominik Szczęsny-Kostanecki

TVP WEEKLY. Editorial team and jornalists

Main photo: “The credit is dead” An engraving by an unknown author from the early 19th century. Photo Fine Art Images/Heritage Images/Getty Images
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