Polish banks turn to consumer credit to beat record low rates
WARSAW Aug 30 (Reuters) - Faced with record-low interest rates that erased a large chunk of their incomes, Polish banks have turned to high-margin consumer loans which gave them an unexpected earnings boost and they said pointed to a tentative economic recovery.
Most of Poland's leading banks have reported second-quarter results well ahead of expectations.
While some lenders benefited from gains on their bond portfolios, many tapped a growing appetite for cash loans helped by the loosening of requirements by KNF, the financial watchdog.
Poland nearly fell into recession at the start of the year as consumers, discouraged by unemployment at a 6-year high, reined in spending and the government sharply cut public investment, leading to a contraction in domestic demand.
A revival in the eastern Europe's largest economy is important for the continent as a whole, because it can help the battered euro zone emerge faster from recession.
All-time low interest rates of 2.5 percent, intended to boost the economy, have put a squeeze on banks' net interest income, or the difference between what it costs them to raise money and what they get for lending and for investing it.
However, in a quarterly survey conducted by the central bank, lenders said they saw a significant rise in demand for consumer credit and a third expected the trend to continue in the coming months.
After two years of shrinking, the consumer credit market started to grow again in March and April, the bank said in a report discussing the stability of the Polish financial system.
Poland's biggest lender, PKO BP, reported on Thursday that new consumer loans grew by 13 percent in the second quarter from the first three months of the year just as interest income fell 7 percent.
Bank Millennium reported a 7 percent quarterly rise, while ING Bank Slaski and Getin Noble Bank saw growth of 5 percent and 4 percent, respectively.
Bank executives and analysts said the long-awaited bounce in demand for short-term cash loans reflected a gradual economic recovery.
"This is a signal of a small revival. Looks like a fewer number of Poles is worrying about their future, so they're more willing to take on a financial commitment," said Wioletta Pawinska, the head of consumer credit at Bank Millennium.
Changes in KNF's so-called recommendation T, which in recent years has forced banks to sharpen lending criteria, this year gave them more flexibility in awarding retail loans.
An important change is that now existing customers of a bank who want to take out a loan from that lender do not have to produce financial documents to prove their net worth - which the self-employed in particular found difficult.
Radoslaw Ksiezopolski, a member of the management board of Credit Agricole's Polish unit, said the growth in the retail loan segment should continue at least until the end of this year. (Reporting by Chris Borowski; Editing by Pravin Char)
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