Poland - Banking and securities
The Banking Law of 1 July 1982 substantially reformed the Polish banking system by giving banks an effective role in setting monetary and credit policy, thereby allowing them to influence economic planning. The Council of Banks, consisting of top bank officers and representatives of the Planning Commission and the Ministry of Finance, is the principal coordinating body.
The National Bank of Poland (Narodowy Bank Polski-NBP), created in 1945 to replace the former Bank of Poland, is a state institution and the bank of issue. It also controls foreign transactions and prepares financial plans for the economy. On 1 January 1970, the National Bank merged with the Investment Bank and has since controlled funds for finance and investment transactions of state enterprises and organizations. The function of the Food Economy Bank and its associated cooperative banks is to supply short and long-term credits to rural areas. The national commercial bank, Bank Handlowy w Warszawie (BH), finances foreign trade operations. The General Savings Bank (Bank Polska Kasa Opieki-PKO), a central institution for personal savings, also handles financial transfers into Poland of persons living abroad.
In March 1985, two types of hard-currency accounts were introduced: "A" accounts, bearing interest, for currency earned in an approved way; and "B" accounts, for other currency, bearing no interest. "B" accounts can be converted into "A" accounts after one year. Major enterprises in Poland conduct their business by interaccount settlements through the National Bank rather than by check, and wages are paid in cash. Banking laws in 1989 opened the country's banking system to foreign banks.
A fundamental reorganization of the banking sector took place between 1990 and 1992. The NBP lost all its central planning functions, including holding the accounts of state enterprises, making transfers among them, crediting their operations, and exercising financial control of their activities. The NBP thus became only a central bank, and state enterprises competed with other businesses for the scarce credits available from commercial banks. Nine independent (so-called commercial), although state-owned, regional banks were created.
In 1993, the first of these, the Poznan-based Wielkopolski Bank Kredytowy (WBK), was privatized. A second highly controversial privatization took place in early 1994 with the sale of the Silesian Bank (Bank Slaski). Also, the Krakow-based Bank Przemyslowo-Handlowy (BPH), was disposed of at the start of 1995 and Bank Gdanski was sold in late 1995. With four major banks privatized, five remained to be sold off in a process that was supposed to have been completed by 1996. With no real hope of meeting this deadline, the Polish government returned in 1996 to proposals for "bank consolidation" prior to privatization. A major round of privatization was due to begin in 1998-99 beginning with the sale of Pekao, the country's largest commercial bank. This sale finally put over half of the industry's holdings in private hands. At the same time, foreign investment in Polish banks continued to increase. Citibank, ING, Commerzbank, Allied Irish Bank, and J.P. Morgan were leading foreign investors in 1998. In the summer of 1999, Bank Handlowy and BRE announced plans to merge, but as of that December, the Polish government was blocking the deal alleging that rather than being a merger of equals, BRE was mounting a takeover of Handlowy.
The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $23.0 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $82.8 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 16.2%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 14%.
In early 1991 important legislation was introduced to regulate securities transactions and establish a stock exchange in Warsaw. At the same time, a securities commission was formed for consumer protection. A year later, the shares of 11 Polish companies were being traded weekly on the new exchange. Restructuring the financial market not only was necessary for increasing the overall efficiency of the economy and accelerating privatization, but also was a precondition for the rapid influx of Western capital critical to economic development.
When the Warsaw Stock Exchange opened in April 1991, it had only five listed companies, but by September 1996 that figure had increased to 63. Into 1998, the market still suffered growing pains similar to those afflicting other emerging markets. In particular, the high liquidity of Polish stocks made Poland particularly vulnerable to panic selling. Market capitalization in 2001 was $26 billion, down 17% from the $31.3 billion level of 2000. The WIG All Share Performance Index was at 13,922.2 in 2001, down 22% from 17.847.6 in 2000.