Poland Deserves 2012 Credit-Rating Increase, Deutsche Bank’s Kalicki Says
Poland is rated A2 by Moody’s Investors Service, the sixth- highest grade and on par with Italy. Standard & Poor’s and Fitch Ratings both have Poland at A-, the seventh-highest grade. Italy is two steps higher at Fitch and one step lower at S&P. An upgrade is unlikely until Poland delivers on fiscal pledges, Fitch said this month.
“It makes perfect sense to expect a rating upgrade for Poland,” Kalicki said yesterday in an interview in Warsaw. “I don’t want to say there are no challenges facing the Polish economy, but they are incomparable to what’s going on elsewhere in Europe. Poland definitely deserves an upgrade after all the work it has done since 1989.”
Poland’s economy, the largest of the European Union’s eastern members, was the only one in the 27-member bloc to escape a recession in 2009. The government expects gross domestic product to rise 2.5 percent this year. The euro area’s economic output may shrink 0.3 percent, according to the World Bank.
S&P cut the credit ratings of nine euro-region states on Jan. 13, including top-rated France and Austria, saying steps by European leaders “may be insufficient” to solve the bloc’s debt crisis. The government bonds of Hungary, a former Soviet satellite that joined the EU at the same time as Poland in 2004, were cut to junk by all the major rating companies in the last three months.
Credit-default swaps used to insure Polish debt against non-payment for five years are trading at 238 basis points, compared with 409 basis points for Italy, according to data provider CMA, which is owned by CME Group Inc. (CME) and compiles prices quoted by dealers. A basis point is 0.01 percentage point.
The extra yield that investors demand to hold Polish 10- year bonds over German same-maturity debt fell to 374.9 basis points today, from 408 basis points on Jan. 5.
“Poland’s credit-default swaps are far lower not only than Hungary’s, but also than Spain’s or Italy’s,” Kalicki said. “The market is showing that it has confidence in Poland.”
The creation of a European rating company would be a good idea “after the experiences of the last couple of years,” Kalicki said. German Foreign Minister Guido Westerwelle on Jan. 17 said it was “high time” to establish a rating company in Europe to compete with U.S. rivals.
“The rating agencies were always biased against this region, I suppose because of history,” said Kalicki, who was deputy finance minister in 1994-1996. “But recent experience has shown that they weren’t sufficiently objective. It’s simply irrational that countries embroiled in the crisis have a higher rating than Poland.”
Prime Minister Donald Tusk last year became the first Polish leader since the collapse of communism to win a second consecutive term. He raised employers’ disability contributions, plans to cut tax incentives and pledged to introduce a tax on metals extraction to narrow the budget deficit to within the EU limit of 3 percent of GDP this year.
The budget gap probably narrowed to 5.6 percent of GDP last year from 7.8 percent in 2010, according to government estimates. The government must take further measures to overhaul the country’s budget including cutting public sector jobs, Kalicki said.
“We need to do more -- and not only on the revenue side,” he said. “We need to cut spending. There are plans to do just that, but there’s a big difference between plans and implementation.”
Tusk may list a new series of initiatives once his plans are enacted to ensure the budget cuts are sufficient, the Polish edition of Bloomberg Businessweek reported on Jan. 23.
“Our macroeconomic situation is very stable, and Poles themselves seem to be satisfied with this level of stability and to be working to keep it,” Kalicki said. “After 20 years of wanting to catch up with the West, Poles are thinking more long term and rationally.”
Poles have increasingly used bank loans to invest in property rather than short-term luxuries like clothes or cars, according to Kalicki.
Polish households had 270 billion zloty ($83.5 billion) in mortgage loans during the first quarter of last year, an increase of 23 percent from the year-earlier period, according to figures from the national banking regulator.
“We see this in deposit trends, but also in consumer finance,” Kalicki said. “In the 1990s and early 2000s, people wanted to fund consumption with credit. This sector has now shrunk in Poland. Mortgage and housing finance generally have become far more important.”
No Credit Freeze
There are no signs that Poland’s banks will suffer a credit squeeze, Kalicki said. Western lenders, some of which are struggling to meet capital and liquidity requirements, control about 75 percent of eastern Europe’s banking industry.
Polish bank’s are “very well capitalized,” central bank Governor Marek Belka said in an interview with Bloomberg Television in Davos today, adding that credit growth is “robust.”
“There’s no reason why credit should freeze in Poland,” Kalicki said. “The Polish banking supervisory body is monitoring what’s going on in undercapitalized subsidiaries here very carefully and is exerting pressure on banks to retain profits, while tightening conditions on paying dividends.”
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