Macroeconomic factors potentially affecting the Group's performance
According to the Bank, the macroeconomic situation shall slowly but steadily improve in 2017, although external factors may cause uncertainty. The economic growth rate should increase to 3.2-3.5% of GDP. Domestic demand will continue to grow, while the Russian import ban on agricultural products and foods, slow economic growth in the Eurozone, initiation of the Brexit process and possible trade wars between the United States and other countries may limit the growth in exports of goods and services. An increase in domestic demand shall result from a growth in both consumption and investments. An advantageous situation in the labor market (an increase in salaries and wages and employment rate) and cash transfers to families with children under the Family 500+ program (ca. PLN 23 billion in 2017) are likely to drive consumption expenditure. Consumption may also be boosted by higher appetite for consumer loans among households due to their improved credit standing. Households may be also discouraged to increase consumption expenditure by inflation. Still, assuming that the inflation growth will be moderate only, it should not result in a considerable reduction of expenditure. After the decrease in 2016 resulting from delays in disbursements of funds under the EU perspective 2014-2020, investment expenditures are expected to grow in 2017. Record low interest rates should also positively affect investments in the economy. The Bank expects that at the end of 2017 the reference rate of the National Bank of Poland will remain at 1.50%.
In 2017 other challenges for the Polish banking sector and for the Group may include:
- Possible changes in tax on certain financial institutions (the bank tax) after the expected review by the Ministry of Finance.
- Possible regulations which would prohibit charging fees for maintaining accounts and making card transactions.
- Implementation of recommendations of the Financial Stability Committee on restructuring mortgage loans denominated in foreign currencies including the Swiss franc. The Committee recommended increasing the risk weight to 150% and maintaining a system risk buffer of 3%. If capital requirements are increased for banks, their ability to extend new loans may be reduced and the risk buffer may become a serious burden for the entire banking sector. Conversion of mortgage loans in Swiss francs will not directly affect the Bank, as all mortgage loans in its portfolio have been granted in Polish zloty.
- Possible deterioration of Poland’s perception by investors and capital outflow resulting from adverse changes in ratings assigned to Poland by rating agencies. After S&P cut Poland’s long-term foreign currency sovereign credit rating from A- to BBB+ on 15 January 2016, which was the first downgrade since 1995 and when Moody’s changed the rating outlook to negative in May, further downgrades by rating agencies are possible. Agencies emphasized the percentage of the public deficit in GDP, which was estimated by the Ministry of Finance at 2.8-2.9% in 2016, i.e. much above the projections and close to 3.0%, the amount determined by the EU. According to rating agencies, state pension age reduction in Poland, which will come into force as of 1 October 2017, may also adversely affect the rating. Any downgrade of the rating or outlook would result in a weaker zloty against all major currencies and the sale of domestic treasury bonds.
- GDP growth rate lower than projected due to delays in investments in the economy. If the actual growth is slower than expected, the operational risk of banks may increase and the loan portfolio quality may deteriorate.
- Possible deterioration of the situation in the global economy. The Brexit process will have been formally launched by the end of March 2017, which may bring about economic turbulence in the United Kingdom and in the whole European Union. Moreover, the policies of the President of the U.S., Donald Trump, and possible trade wars between the U.S.A. and its key trade partners, in particular China, may dramatically affect the world economy. The problems of Greece and other Southern European countries (including the Italian banking sector) remain unsolved, the economic rebound in the Eurozone seems moderate. This scenario could adversely affect Polish exporters and could hinder the economic growth rate. This, in turn, would entail a limited demand for services offered by the Bank and higher costs of risk related to the deterioration of the financial position of clients.
- Fed discontinuing its easement policy sooner than expected. It could translate into capital outflow from emerging markets, including from Poland. The Polish currency would weaken and Treasury securities would be sold. It would also lead to higher costs of servicing public debt and limited possibility to finance business investments.
- Further reduction of interest rates by Swiss National Bank (SNB). Although this would reduce the value of CHF vs. other currencies, to include PLN, and improve lenders' ability to pay their liabilities to banks, LIBOR CHF rates getting more and more negative would affect banks holding large portfolios of CHF-denominated loans.