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Financial Stability Report, December 2021
Systemic risk in the Polish financial system has declined, with legal risk of FX mortgage loans remaining the main risk

Date: 07-12-2021

Since the release of the last edition of the Report, the strength of the existing sources of risk has declined and the overall assessment of domestic financial stability has improved.

The capital of the banking sector creates an adequate buffer in the event of unexpected shocks. Banks have managed to restore their profits in 2021, but the low profitability of the banking sector remains a challenge, especially for smaller banks. This notwithstanding, low profitability does not generate risks to system stability. Also the negative developments in the situation of weaker banks would not jeopardize the stability of the other banks.

Legal risk of FX housing loans remains a major source of risk in the system; however, the probability of the most costly scenarios unfolding for banks has diminished. The provisions for legal risk have increased substantially; however, they vary widely across banks, which may raise concerns about the adequate reflection of risk in certain institutions.

Lending is expected to recover further in the main segments. Risks stemming from imbalanced debt growth in the residential real estate market remains limited, although acceleration of lending in this segment needs to be closely monitored.

Financial Stability Report, December 2021

Notes: Shares of individual sectors (banks, insurance companies, etc.) reflect the value of their assets as at the end of 2020. The size of the circle describing the risk depends on the scale of risk (low, average, high). The main interactions – amplifications – across the risks are marked with grey arrows. Blue arrows pointing inwards particular risk denote a decrease in risk, while red arrows pointing outwards from the risk denote an increase in risk. A new risk is marked with a black arrow that goes from outside the circle. The colour of individual sectors shows systemic risk intensity – from very low risk (blue colour), through low and moderate to high (burgundy).

According to the opinion of Narodowy Bank Polski, the implementation of the following recommendations will be conducive to maintaining the stability of the domestic financial system.

  1. Banks, in cooperation with audit firms, should analyse whether their approach to creating provisions for legal risk associated with the FX housing loans portfolio is adequate.
  2. Banks and borrowers should seek more actively to settle their disputes out of court and reach settlements in FX housing loan cases.
  3. Banks should conduct a prudent lending policy with regard to the purchase of real estate and refrain from concentrating lending growth in this segment.
  4. It is advisable to speed up the process of integrating and merging cooperative banks to improve efficiency of the operating efficiency of the cooperative banking.
  5. Insurance companies should consider in their capital needs the issue of double gearing of capital and the high share of expected profits included in future premiums in own funds.
  6. Life insurance companies should refrain from offering unit-linked insurance policies which do not fulfil the basic cover component.
  7. Investment funds should reduce the scale of liquidity transformation and investment fund management companies should increase capital to provide support in the event of liquidity risk materializing in the funds they manage.

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Narodowy Bank Polski
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00-919 Warszawa

+48 22 185 10 00
NIP: 525-000-81-98
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