Risk Management

In the Footsteps of the Bison Polish Bank Pekao SA was one of the few success stories during the financial crisis. Whereas many banks suffered heavy losses, or deteriorating results, it maintained high profitability. In this article, the authors examine the cautious and reasonable policies applied by Pekao both prior to and during the crisis which allowed them to achieve this, and how every financial institution can learn from this example.

In the Footsteps of the Bison

by Andrew England, Head of CEE Global Transaction Banking, UniCredit Group, and Witold Gonera, International Cash Management Sales Team Head, Bank Pekao SA

Liquidity and finance facilities – ideally not in panic conditions: this is what a treasurer desperately looks for during turbulent times. The current crisis, which has severely hit the economies of Central and Eastern Europe, was another tough test for local currencies and financial systems. Some countries have survived the turbulence quite successfully, e.g., Poland and to some extent Russia, whereas others, such as Hungary and the Baltics, are having to pay a painful price for their past fiscal policies.

The pressure on a finance department of a company when markets start to tumble is very strong, so they have every reason to expect their banking relationships to work smoothly. Be it a retailer, an exporter of infrastructure equipment or a credit card operator: covering a fragmented geography like Central and Eastern Europe with different legislation, tax regimes, currency systems and languages requires enormous effort. UniCredit Group’s diverse and proven set of core competencies in the fields of cash management and eBanking, trade finance, supply chain management, structured trade & export finance and global securities services are tailor-made for companies operating in the region.

The biggest European mammal – the bison, still to be found in the north-east of Poland – has always been perceived as a symbol of formidable power, prosperity and plenty, but they are cautious as well, and know how to avoid getting bogged down in swampy ground. The same applies to the Polish Bank Pekao SA, that has a bison in its logo. It is one of the two biggest banks in Poland servicing some five million customers including 250,000 corporates, and even before the world financial crisis began it was acting very cautiously and thoughtfully. This crisis had a tangible negative impact on the banks’ image and financial results. In Poland – where the situation was generally less severe, with lower, but still positive GDP growth during the crisis – the banking sector results were hit.

But whereas other banks suffered heavy losses, or deteriorating results, Pekao managed to maintain high profitability. How was this achieved? On one hand the bank focused even more closely on credit risk free products, especially in the cash management area, with offerings in such as receivables management services for e.g. Pekao Collect, facilitating mass incoming payment management, and innovative and local market oriented solutions like Bill Payments, enabling individual clients to pay their bills in convenient localities, such as shopping centres and petrol stations, with competitive concessions. Autowithdrawal is a convenient way of mass cash disbursements such as forex indemnity payments, travel expenses etc. through the bank’s network of over 1,000 branches to private individuals who do not have a bank account.

On the other hand, the bank followed consistent and conservative rules with regard to credit policy: for example, unlike the common practice in the Polish banking market, Pekao did not grant 50-year mortgage loans, or loans in foreign currencies, especially Swiss francs so popular in Poland. It focused on synchronising the clients’ cash inflows with the funds needed to repay the debt later, and did not take part in the ‘lemming-like’ rush of many other Polish financial institutions granting foreign currency mortgage loans to clients unable to afford more expensive PLN loans, or who wanted more credit to buy a bigger home.

This cautious and reasonable policy bore fruit. The bank was recognised as the most valuable Polish company in 2009, according to the annual ranking of Newsweek Poland and the consulting firm AT Kearney, beating its competitors in the banking industry for this prestigious award, including its main competitor PKO BP, as well as the biggest Polish companies operating in other industries, such as PGE, PZU, PGNiG, or Polish Telecom. During the last five years the bank has advanced from fourth to first position in this respect, and was also named Best Bank in Poland in 2009 by Euromoney, The Banker and Global Finance magazines.

The economic crisis has demonstrated how important solid foundations are for every financial institution. Last year proved that our conservative policy, based on traditional banking with a strong deposit base, conservative risk approach and a lending policy which avoided foreign currencies, is the best defence against market turmoil. Despite unfavourable market conditions Bank Pekao demonstrated its leading position, maintaining a strong capital base and the excellent quality of its assets.

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