MOODY'S: POLAND'S BANK THREATENED BY NEW TAX.

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A new tax on Polish banks threatens their credit ratings and profitability, warned Moody’s on Monday as rating agency concerns over the country’s political climate continued to mount.
Moody’s estimates that the tax, which from February will charge banks 0.44 per cent of their adjusted assets each year, will cost the sector around €1bn during 2016.

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“Such a decline in net income would reduce banks’ ability to absorb shocks,” Moody’s said. “The tax also threatens to hurt credit growth because it reduces banks’ capital creation, which risks adversely affecting Poland’s economy and resulting in slower GDP growth,” the rating agency added.
Shares in some of Poland’s largest banks, including PKO Polski, fell on Monday. The MSCI index of Polish banks is down around 18 per cent since October, and last week fell to its lowest level on record.

In addition to the new tax, the country’s banks face a challenge from a looming currency conversion of mortgages.

Mortgages denominated in Swiss francs — 16 per cent of total loans as of November, according to Moody’s — would be converted to the Polish zloty under a proposal by Poland’s president Andrzej Duda earlier this month.
Crédit Agricole on Monday said the franc conversion proposal was “a recipe for recession”, warning that the total cost to the affected banks could be as much as 59bn zlotys, or $14.3bn.
“The enforcement of the [franc conversion] act in the form proposed by the Chancellery of the President would trigger a loss for the banking sector significantly exceeding its annual net financial result,” wrote Crédit Agricole, which operates a subsidiary in Poland.
“We believe that this loss would lead to an extreme decline in lending, weakening of the zloty, higher yields on bonds and a sharp slowdown of economic growth conducive to a long lasting and marked deterioration of the fiscal situation,” the bank added.
Last week Fitch warned that the conversion could “weaken the banking sector to an extent it would not be able to provide financing to the Polish economy” and could result in a downgrade of the country’s rating.

Monday’s warning adds to a chorus of rating agency criticisms of Poland so far this year. Earlier this month, Standard & Poor’s downgraded the country’s credit rating and put it on negative watch, weakening the zloty and sending government borrowing costs higher.

Rating agencies have repeatedly pointed to the policies of Poland’s new conservative government, Law and Justice (PiS) party. The party assumed power in October and has since adjusted the structure of the country’s highest court, provoking an EU investigation.