Wall of provisions casts shadows over Europe’s best economy

WARSAW: Polish banks escaped the brunt of the Great Recession in 2008. This time around, a wave of heavy provisioning suggests that they’re worried they may not be so lucky.

With the coronavirus crisis threatening to wreak worse havoc on global economies, Poland’s financial institutions are leading east European banks in front-loading potential losses.

The concern is that forecasts for the country may be too optimistic and safeguards against the spread of Covid-19 will devastate their balance sheets.

Polish lenders increased write-offs for credit risk by 53% in the first quarter, which cut the national industry’s total net income in half.

The largest central European nation braces for its first recession since 1991 and a wave of interest-rate cuts to record lows, a plunge in consumer spending and loan-repayment holidays raise the risk bank profits will be wiped out before any recovery.

“There is no standard about coronavirus write-offs, but we know that if we have this unprecedented situation and we don’t know the future, we want to behave conservatively,” said Slawomir Sikora, the chief executive officer of Citigroup’s Polish unit, Bank Handlowy SA, in a conference call on May 14.

His bank reported one of the biggest increases in the cost of risk among Polish lenders.

Central and eastern European governments have been among the most successful in avoiding the ravages of the pandemic, with some of the world’s toughest lockdowns and strictest social distancing measures, as shown by shallower economic contractions than in the West.

Even so, banks from the Baltics to the Balkans are scrambling for ways to further soften the blow, supported by monetary stimulus from central banks.