International -- Finance: POLAND
THE NEW PHRASE IN POLISH: CHARGE IT (int'l edition)
Auto loans and plastic fuel a spending spree
Jola Kielan breeds Black Russian terriers. Until lately, the 46-year-old native of suburban Warsaw, an accountant by profession, had trouble getting the huge and feisty animals to and from shows. But last May, she bought a new four-door Rover compact for $10,500, with a 30% cash downpayment and a three-year loan at 38.5% from Bank Zachodni. A week later, Kielan drove her terriers over to Brussels, where they placed best in show for guard dogs.
Kielan is part of a consumer-credit revolution in Poland, where people are using bank loans and plastic to buy everything from cars to dishwashers. The trend could give further fuel to a consumer boom as the over-40 generation rushes to replace outmoded Soviet products and young people make their first major purchases. Their shopping sprees are helping the economy grow smartly. Gross national product increased by an estimated 7% in 1995 and, despite a drop in exports due to a rising zloty, GNP should grow by 5.5% this year as the economy becomes more consumer-driven. The growth of credit "is absolutely necessary for the middle class to form in a stable way," says Robert Lepkowski, founder of Renaissance Partners, a $40 million venture capital fund.
SURPRISING INCOME. Under communism, checking accounts didn't exist, and Poles conducted all their transactions on a cash or barter basis. Even when trade barriers dropped in 1990 and more products hit the stores, shoppers preferred cash: With inflation in the high double digits, interest rates of up to 70% were the norm in the early years of the free-market economy. Now, as annual inflation has eased to around 22%, consumers consider credit rates of 28% to 31% affordable.
Car dealers' showrooms are where Polish shoppers' new eagerness to say "charge it" is showing up most dramatically. All of Poland's major carmakers have made deals with banks to package auto loans. Renault now sells half of its cars on credit. Fiat has signed car-financing deals with three banks, including GE Capital Bank in Gdansk--the American company's first investment in Central Europe. "The percentage of cars bought on installment here is [still] much lower than in Western Europe or the U.S., but that is going to change," says Mark Greenquist, country director for General Motors Corp.
But while car sales may have the biggest impact on the overall economy, Poles are buying other big-ticket items too, particularly household appliances such as televisions. And consumers have come up with far more money than government estimates of disposable income indicated was available. Based on their buying, the official national savings rate of about 12% is probably low.
The banks are riding the spending wave. Gdansk-based Bank Gdanski, which was privatized through an initial public offering in early December, has seen its consumer loan portfolio grow from $2 million in 1992 to $20 million today. And buying on credit is not just an urban phenomenon. In rural areas and small towns, bankers have jumped on the bandwagon. Gospodarczy Bank Poludniowo-Zachodni, a private regional agricultural cooperative bank in Wroclaw, made more than $58,900 worth of consumer loans in 1995.
FEW DEADBEATS. Poland's credit business is still in its infancy, and some Western analysts worry that Polish banks are ill-equipped to assess credit risks and protect lenders in case of a downturn. "No one knows how to give you the likelihood of a consumer payment when you haven't had any credit for 45 years," says Gerald Thompson of Crimson Capital, a U.S. Agency for International Development adviser to Polish banks on financial services and privatization. But so far, few lenders are getting burned, and defaults, which averaged 2.8% as of November, are covered by central-bank-mandated reserves.
That's giving hope to Western consumer finance companies eager for a piece of the action. Last year, Visa International issued 76,000 debit cards, a 234% increase over 1994. By yearend, Visa plans to install 200 ATMs and 2,000 point-of-sale terminals in stores that accept its debit cards. And Citibank plans to launch retail banking operations within the year.
After decades of pent-up demand, consumers are likely to play a critical role in Poland's maturing economy. "This could be one of the fastest-growing consumer markets in the world," says Crimson Capital's Thompson. Greater access to finance will keep that market humming.BY PEGGY SIMPSON IN WARSAWReturn to top