Erste `Won't Touch' Polish Banks as Politics Turns Unpredictable

  • CEO says waiting to see if Polish `politicians come to sense'
  • Valuations of Polish lenders dropped to 9-year low last month

Dropping valuations aren’t enough to convince Eastern Europe’s third-largest lender Erste Group Bank AG to buy assets in Poland, the region’s biggest market, amid growing political uncertainty in Warsaw.

Consolidation among Polish banks has been slowed by uncertainty stemming from the government’s plan to convert $44 billion in foreign currency-denominated loans, a proposal called “pure evil” by central bank Governor Marek Belka last month. Vienna-based Erste had its eyes fixed on a Polish target but didn’t strike a deal because it was too expensive at the time, Chief Executive Officer Andreas Treichl said on Friday. He didn’t reveal the name of the Polish bank or the timing of his approach.

“Now, actually, it’s even lower in price than what we were waiting for, but I wouldn’t touch it,” Treichl told analysts in a conference call. “Do you want to make moves into a market where you pay 1.5 times book value for a bank, and then you have the parliament convening and passing a couple of laws a week later, and after that you wouldn’t even pay 50 basis points for the bank?”

Poland’s three-month-old government has been on a collision course with the European Union, which is checking whether the ruling party is adhering to the bloc’s democratic standards, as well as credit rating companies after Standard & Poor’s downgrade last month. The financial industry is one of the main battlefields for the government, which has called on lenders to share more of their profits with Poles and levied a new tax on their assets, which will siphon off about a third of the industry’s annual profit.

New Era

The era of “high returns on capital in the banking industry is gone,” Poland’s Finance Minister Pawel Szalamacha said on Jan. 4, stoking concern among investors about an uncertain legislative environment for lenders. Raiffeisen Bank International AG and General Electric Co. are seeking to sell their Polish units, both of which are among the most exposed to the planned legislation on foreign-currency mortgage conversion.

The WIGBank Index grouping 15 Warsaw-listed lenders dropped a price to book value of just above one in January, the lowest since 2009. It’s now trading at 1.2 times book value, compared with 1.6 times a year ago.

Poland’s is also seeking to cancel bilateral investment treaties with other European Union members, seeking to eliminate a tool that had protecting foreign investors’ interests in the post-communist country, according to the Treasury Ministry.

The environment is “very volatile” and Erste would rather “wait and see whether politicians come to their sense and if we have the feeling they will, we might make a move again,” Treichl said. “But do you want to go to Poland tomorrow?”

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