ING Says Poland's Bank Tax May Rescue Bond Deals From Doldrums

  • Corporate-debt sales slump to five-year low as bank loans soar
  • Proposed levy on assets may drain 5 billion zloty from lenders

The new Polish prime minister’s plan to tax banking assets may have an unintended beneficiary -- the country’s bond market.

Beata Szydlo reiterated in a policy speech to parliament on Wednesday that the Law & Justice party will impose a levy on bank assets to fund more social spending, a move that will push more companies to the bond market in 2016 as lenders scale back credit, according to ING Groep NV and mBank SA. Corporate-debt sales slid to a five-year low this year because it was cheaper for borrowers to go to banks to raise cash than tap bond markets.

The country’s lenders, which posted record profits of 16 billion zloty ($4 billion) last year, came under pressure from Law & Justice politicians who accused them of charging customers “some of Europe’s highest fees.” The plan to levy a tax of 0.39 percent on banks’ assets, if it goes through, could cost lenders as much as 5 billion zloty a year, according to Law & Justice estimates.

“The new tax may help to bring more issuances to the market, especially as benchmark interest rates may fall even further,” Robert Dabrowski, head of ING’s debt origination in Warsaw, said on Tuesday. “Now, banks offering long credit tenors at low interest are the major alternative for selling bonds. They will probably be more selective with new burdens.”

ING was the biggest arranger of corporate-debt sales this year through October, according to Fitch Ratings.

Bank loans dominated borrowings by Polish companies this year. They rose by 27.7 billion zloty ($6.9 billion), or 9.3 percent, in the first 10 months of the year. Bond sales slumped by two-thirds to the equivalent of $3 billion, data compiled by Bloomberg and those obtained from the central bank show.

Polish banks’ 300 billion zloty lending capacity may shrink by 70 percent from the combined impact of the asset tax, bigger contributions to the state Bank Guarantee Fund and increased capital requirements, Bank Pekao SA’s estimates show. The effect is already showing on borrowing costs: lenders have begun to ask for higher margins, said Anna Strizyk, the chief financial officer of Tauron Polska Energia SA, the second biggest Polish utility, which is seeking to raise as much as 6.5 billion zloty for new investment and refinancing.

“It’s not the best moment to negotiate banking loans,” she said on Nov. 12.

Select Segments

The rebound in bond sales will have to come from a select few industries such as property developers, debt collectors and banks that had postponed their funding plans because of uncertainty over new capital norms and details of the asset tax, according to ING’s Dabrowski. Demand from other segments may remain muted until large utilities in the power and oil-and-gas industries revive their investment plans, he said.

“The key issue is that there is no boom in corporate investments now,” he said. “That limits demand for funding.”

Polish corporate dollar bonds have outperformed similar securities in emerging markets since last month’s general elections. The yield spread premium over developing nations narrowing to 10 basis points on Tuesday from 22 basis points on Oct. 23, according to JPMorgan Chase & Co. indexes. Monetary-policy easing helped lower Poland’s average corporate-borrowing costs by 50 basis points to 3.6 percent, central-bank figures show. 

“I expect more issuance volumes next year,” Tomasz Galka, the head of debt origination at mBank, said on Wednesday. “Changes in the banking industry may increase the cost of loans and limit their availability, making bond sales more attractive for some borrowers.”

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