A R G U M E N TA OECONOM ICA No 1-2(6)- 1998 PI.. ISSN 1233-5835
INAUGURAL LECTURE FOR OPENING THE ACADEM IC YEAR 1998/1999
Andrzej Gospodarowicz*
THE BANKING SECTOR IN THE CONTEXT
OF POLAND S INTEGRATION IN THE EU
In th e paper there are discussed problem s concerning the adjusting processes in our banking secto r in the co n tex t o f Poland’s adherence to E uropean structures. In the introduction an attention is paid to th e negotiations currently ongoing betw een the experts from Poland and from the EU, during which several sections o f the EU law are exam ined. T he results of these negotiations will determine the pace o f o u r integration in the EU. The next section presents the scope and the object o f the adjusting processes o ccurring in the Polish banking sector. T h ey generally reduce to the th ree groups o f problems, that are: 1) defining the position of a central b an k within a state structure, its aim s, conditions and possibilities o f effective functioning; 2) harmonizing banking law and supervisory security regulations in conditions o f liberalizing flow of capital and increased possibilities of supplying transborder services; 3) increasing th e effectiveness, efficiency and security o f the banking sector. At the p resen t stage o f realizing the ad justing processes the actions undertaken in th e area of the third group o f problem s are of key im portance fo r constructing in Poland a modem banking system comparable to the banking systems functioning in th e E U countries. The third part o f the p ap er deals with this group o f problem s.
1. INTRODUCTION
O n 1 February 1994 the form al association b etw e en the Polish Republic a n d the E uropean Union and its m em ber states came into force. Shortly afterw ards, on 5 A pril 1994, Poland m ade an official application to become a m em ber o f the E U . A t present our country, together with o th er six selected countries, is a ca n d id a te for EU m em bership, and the official negotiations leading to adm ission began this year.
D uring the period from 27 April to 17 July 1998 E U and Polish experts review ed nine sections of the EU law s and assessed the compatibility of Polish State regulations with them. They dealt with the following areas: science and research, telecommunications and inform ation technologies, education and schooling, culture, audio-visual policy, industrial policy, joint foreign policy and security, company law, consum er and health protection, fishery, and statistics.
» D ep artm en t o f C om puter M e th o d s in Management, W ro cław U niv ersity o f E conom ics; e-m ail gospodar@ m anager.ae.w roc.pi
This a u tu m n further negotiations w ill take place, d e a lin g w ith further 19 aspects o f E U law s including th o se extrem ely co n tro v e rsial fo r us like the u nrestricted flo w o f goods, a g ric u ltu re and environm ental p ro tectio n . With reference to ev e ry act of the E U law contained in th e so -c alle d A list, therefore co m p u lso ry , Poland w ill h a v e to declare w h e th e r th e introduction of any o f su c h law s and their im plem entation:
1) will n o t create any problems,
2) w ill c reate some technical problem s which can be re so lv ed quickly, 3) will create a problem difficult enough to warrant the necessity to discuss it bilaterally.
It is difficult to say how long these negotiations will take. Undoubtedly, their positive outcom e will be a decisive factor in setting the date for Poland to join the EU. The final result will also depend on the political will o f the E U member states, the state of Poland’s adjustment to the EU laws, and the acceptance of our membership by the majority of the Polish population.
The re su lts o f the latest opinion p o lls in Poland show a sig n ifican t fall in the a c cep tan c e o f P oland’s EU m em b ersh ip . A year ago it w as still at 70%, now it is 5 8 % . A ll the serious a n a ly se s show explicitly th a t e n try to the EU will bring P o la n d enormous b e n e fits in economic, p o litic a l and civiliza- tional term s. T h e re is not a b e tte r fu tu re prospect fo r th e developm ent and m odernization o f the Polish ec o n o m y other than in te g ra tio n with the countries o f w estern and central E u ro p e . Here we have a u n iq u e chance to establish o u r p la c e in Europe in a perm an en t and e ffe c tiv e w ay and create the co n d itio n s fo r successful lo n g -term developm ent.
We can a ssu m e that the latest p o litic a l and financial c r is is in R ussia will weaken the ac tiv ities of those o p p o sin g Polish in te g ra tio n . Poland is not threatened b y the Russian crisis b ec au se in recent fe w y ea rs our main trading p a rtn e rs are the m em ber sta te s of the EU. It w as a result of im plem enting a few years ago a com m ercial part o f th e E U liberalizing Polish in d u stria l exports to the m e m b e r states. H ow ever, I think also that the sp ec ia list econom ic press sh o u ld becom e more a c tiv e a t this point and show clea rly th e potential benefits re su ltin g from P olish m em b ersh ip while at same tim e p re sen tin g the costs in v o lv e d and ways to lim it them .
As I h av e alread y m entioned, th e pace of our in te g ra tio n in the EU will also d epend on the degree of ad v a n cem en t in the p ro c esses o f adjustm ent to EU re g u la tio n s w ithin all sectors o f the economy. T h e lis t o f necessary moves is ra th e r extensive, th e re fo re in iny lecture I w ould like to concentrate on the most sig n ific a n t adjustm ents in th e P o lish banking sector.
2. THE SCOPE AND SUBJECT OF ADJUSTMENT PROCESSES IN THE BANKING SECTOR
A significant part o f th e recom m endations re la te d to the fu n c tio n in g o f th e b a n k in g sector in P o la n d is contained in th e a b o v e m entioned E u ro p e a n U n io n act which P oland sig n e d on 16 D ecem b er 1991. A t their b asis th e re is th e so-called S econd B a n k in g D irective a c c e p te d by EU co u n trie s in 1989. Its main p ro v isio n s re la te to the in tro d u c tio n o f a p rin c ip le o f fre e d o m in supplying b a n k in g services and e s ta b lis h in g branches o f b a n k s in o th e r m em ber states a n d a uniform b a n k in g licence en ab lin g th e fu n c tio n in g of banks in th e whole of EU te rrito ry . By signing th e E U c o n v e n tio n , the P olish sid e undertook to fu lfil se v e ra l obligations a ls o in th e b an k in g sector. T h e y are related m o stly to harm onizing b ro a d ly u n d e rs to o d banking law s w ith EU standards. It im p lie s not ju st a im in g at c o m p a tib ility of P olish re g u la tio n s with th e E u ro p e a n s coun terp arts, b u t a ls o th e acceptance o f a c e rta in way of creatin g la w s, interpreting th em an d c o n tro llin g their im p le m e n tatio n . These u n d e rta k in g s should be fu lfille d d u rin g a ten-year tran sitio n p erio d (starting fro m 1 F ebruary 1994).
T h e Maastricht Treaty th at came into force o n 1 November 1993 also d ictates the scope of adjustm ent procedures. It d efin e d the principles o f the functioning of the hom ogenous internal market an d the freedom of capital and la b o u r flow; it also announced the creation o f a m onetary union based on th e E u ro p ean Central bank and a common currency - th e euro.
T h e expectations in re la tio n to the countries a p p ly in g for m em b ersh ip o f th e E U w ere stated in a d e ta ile d way in the s o -c a lle d W hite Book a p p ro v e d by an E U conference w h ic h took place on 2 6 - 2 7 Ju n e 1995. T h e is s u e s c o n n e c te d with banking a re contained in the a p p e n d ix to this d o c u m e n t, c o n c e n tra tin g on re g u la tio n s and undertakings a c c e p te d as an in teg ral p a rt o f a prop erly functioning b a n k in g sector. T hey a r e divided into tw o g ro u p s a n d in ten d ed to be im p le m e n te d in two su b se q u e n t stages, w ithout h o w e v e r o u tlin in g the tim etable o r th e order of the a d ju s tm e n t procedures. T h e f ir s t p h a s e deals with m atters re la tin g to the e s ta b lis h in g o f banks and e n s u rin g th e stab ility of the b a n k in g sector, the s e c o n d concentrates on th e s tre n g th e n in g of p re c a u tio n a ry m easures in o rd e r to com ply w ith in te rn a tio n a l standards.
T h o se three docum ents d efin e the basic scope an d subject of the ad ju stm en t p ro c esses that should be introduced into the P olish banking sector. T hey re la te to th re e main issues (D aniluk 1996):
1. Defining the positio n o f a central bank w ith in a state structure, its aim s, co n d itio n s and possibilities o f effective functioning;
conditions o f liberalizing flow o f capital and increased possibilities of supplying tran sb o rd er services;
3. Increasin g the effectiveness, efficiency and security o f the banking sector.
In accordance with EU regulations the fundamental duty o f central banks is to maintain stability of prices; this aim should be realized in conditions of independence, and with explicit ban on financing the deficits o f the public sector.
D efining th e new position o f th e Polish N ational B a n k (NBP), in agreem ent w ith EU regulations w a s largely influenced b y the relevant articles o f th e n ew constitution and th e D ecree on the N B P, w h ich came into force on 1 Ja n u a ry 1998. The a p p ro p ria te statutory re g u la tio n s allow ed for:
- creating th e Monetary Policy C ouncil and Banking S upervisory Board, - lim iting th e powers of the chairm an of NBP and tran sferrin g them to its board w hich is responsible to the M onetary Policy Council,
- closer co-operation between N B P and the state, esp ecially the Finance Ministry responsible for the m ajor p art of governmental econom ic policy, including ban k in g sector policy.
The M o netary Policy Council is, alongside the chairman an d the board, the third organ o f the Polish National B ank. Its role is not advisory, but decisional, and it has a m onopoly on decision-m aking in the matters o f m onetary policy. The main task o f the council is to m aintain the m acroeconom ic equilibrium, in particular through reducing inflation, extending the convertibility of the Zloty and increasing Poland’s credibility in international transactions. Its effec tiveness should contribute to an increase in the autonomy o f the NBP and an improvement o f credibility of m onetary policy. The rational definition of the parameters and instruments of such a policy of the C ouncil w ill create the conditions fo r P oland’s integration in th e European M onetary U nion.
Also th e creation of the B anking Supervisory B oard, m ade up of the representatives o f institutions responsible for the functioning o f various parts of the financial m arket, financial and m onetary policies, created the premise for the integration o f financial regulations and supervision in conditions of overlapping activities of the various p arts o f the financial sector.
An im portant part of the issues o f the adjustment of the P olish banking sector relates to the harmonization of banking law and the supervisory security regulations. One should stress that according to E U rules the harmonization o f the law does not equal its unification since every country is presented with certain aims which have to be reached, but is left with the freedom o f choice of the right procedure.
The security regulations issued by the organs of the E U aim at establishing minimum standards helping to restrict excessively risky ac tiv ities of financial institutions and to increase the levels o f security and stability in the banking,
insurance and stock market sectors of the member countries. The existence o f such norm s is a necessary condition for the correct functioning o f a homogenous m arket of financial services.
T h e introduction o f the n e w banking law on 1 J a n u a ry 1998, and s e v e ra l e x e c u tiv e decrees to it re s u lte d in significant p ro g r e s s in the process o f th e h a rm o n iz a tio n of law and se c u rity m easures. P o la n d im plem ented to a la rg e d e g re e in its regulations th e E uropean stan d ard s co n c ern in g the term s o f is s u in g o f banking lic e n c e s, determ ining th e le v e l o f co ncentration o f b a n k in g risk, m easures p re v e n tin g money la u n d e rin g , ways of c a lc u la tin g the c o e ffic ie n t of solvency, a system for in su rin g b a n k deposits, a d ju s tin g th e a c co u n tin g system a n d principles o f b o o k k e e p in g . Som e P o lis h re g u la tio n s set more s trin g e n t requirem ents th an th e E U norm s, for e x a m p le th e n o rm s o f acceptable c r e d it concentration a n d th e system of m e a su re s u se d to calculate a c o e ffic ie n t o f solvency.
T h e realization of the first two groups o f issu es connected w ith th e ad ju stm en t processes o f the banking sector to E U requirem ents rem ains th e responsibility of the state authorities and the NBP. A s previously suggested, th eir im plem entation is runn in g smoothly and sh o u ld be accomplished in th e n ear future.
A m ore complex situation remains in the third group o f these issues, those relating to the increase of efficiency, effectiveness and security of the banking sector. The relevant steps and procedures must be taken by the w hole of the banking sector and should be aimed at increasing the standards of management, strategic planning and m aking decision on restructuring and consolidation. A s their result there should be a rapid progress in technology and education, the standardization of banking products and a steady developm ent of financial services offered, as well as im provem ent in their performance. The present initiatives undertaken in this area o f issues have a paramount im portance for the creation o f a modem banking system in P oland, comparable with the banking system in the E U countries. I shall return to this problem in the final part o f my lecture.
3. INCREASING THE EFFECTIVENESS, EFFICIENCY AND SECURITY OF THE POLISH BANKING SECTOR
To start with I would like to briefly characterize the present day banking system in Poland. This will allow for a more precise presentation o f proceedings necessary to im prove the effectiveness, efficiency and security o f comm ercial banks.
T h e Polish banking sec to r is among the m o st dynam ically d ev e lo p in g b ra n ch es o f our economy. A nyone who has k n o w led g e o f Polish banking te n years ago and the present sta te can confirm the p ro g ress amounting to at le a st
one generation in terms of banking procedures and technologies. However, the distance d iv id in g Polish banks from th e developed m arket econom ies is still significant. C om paring them one should point out the follow ing aspects (Jaworski, 1998; Kosiński 1998):
1. L ow am ounts of capital o f P o lish banks; among the 1,000 biggest banks in the w orld as far as their capital is concerned, there are only four Polish banks: B ank H andlow y S.A., PeKaO G roup S.A., BGZ S.A. a n d PK O BP, all of them far from the top;
2. In the ranking published by “T he Banker” am ong the 500 biggest European b an k s there are only 13 P olish ones; as the h ig h est G roup PeKaO S.A. ranking 131, second Bank H andlow y (158);
3. An im portant feature of the Polish banking sec to r is its low productivity; th e ratio of costs to revenue in 1997 was in P o la n d 0.84 and in the EU 0.69;
4. T he unfavourable relation betw een the costs o f la b o u r and value of assets; in the case o f Polish banks in 1997 it amounted to 1.29% and in the EU countries it w as much lover, e.g. in F ran ce 0.78%, Germany 0.80% ;
5. W eakness o f distribution netw ork o f banking services; in Poland the number o f b an k branches per 10,000 population is a few tim es lo w er than in the EU, although recently there has been som e improvement. In 1997 the number of branches o f the 15 largest banks grew by 15%, however the sta ff numbers are still excessive: in Poland it is on average 70 employees, w hile in A ustria 15 and in Sweden 11;
6. T h e m ajority of Polish banks lack modern com puter system allowing improving the quality of services rendered and ensuring effectiv e strategic and operational planning. The banks also lack efficient means e n a b lin g the current monitoring o f profitability of particular products and setting n egotiable limits;
7. T h ere is a shortage of specialized banking in Poland - banks are mostly commercial an d o f a general nature. T h e EU countries h ave apart from such banks several institutions specializing in particular banking services.
In o u tlin in g th e characteristics o f b an k s present in th e P o lis h m arket one should a lso to u c h upon foreign b an k s. D iscussing th e la tte r can be problem atic a s there are varying d e fin itio n s even o f th e term “foreign bank” . A c c o rd in g to article 4 o f th e B anking Law it d e s c rib e s banks with head o ffic es ab ro ad . O wnership c a p ita l o f banks so d e fin e d co n stitu te 15% of the o w n e rsh ip capital o f the P o lish banking sec to r. T h e General Inspectorate o f B anking S upervision w hen publishing d a ta re la te d to banks with a m a jo rity share of foreign c a p ita l, includes in th is g ro u p banks with foreign in v e stm e n t exceeding 50% o f ca p ita l. Foreign b a n k s d efin e d in such a way had in M arch 1998 16.3% o f a sse ts and 23.3% o f o w n e rsh ip capital in the P o lish b an k in g sector.
S u ch a definition of a foreign bank does not allow fo r the situation when several m edium -size foreign investors ow n jointly over 50% o f the bank’s shares. If w e accept such a broad definition, according to which a foreign bank is any bank w ith m ore than a 50% share of foreign owners, then foreign capital in the Polish banking sector amounts to around 40% o f the share capital o f commercial banks. T his indicator is frequently quoted in evaluating the position o f foreign banks. Bearing in m ind the value of foreign involvement some bankers, som e banking experts an d politicians maintain that the Polish banking sector is already in foreign possession.
It see m s that a p e rc e n tile share of foreign c a p ita l in the banking s e c to r d o es n o t constitute a su ffic ie n t criterion for e v a lu a tin g w hether the s e c to r re ta in s th e national c h a ra c te r and remains ab le to m e e t national p rio ritie s , an d i f it allow s Poland to p u rs u e an independent ec o n o m ic policy. S u ch a n a n a ly s is should also in clu d e o th e r ch aracteristics, lik e fo r exam ple the s h a r e o f fo re ig n banks in the a sse ts o f the banking sec to r. It is im portant w h e th e r b a n k s w ith a m ajority o f fo re ig n capital retain th e fu n c tio n s of a b an k , th e s o -c a lle d good citizen, o r b e c o m e the instrum ent o f strategy for the w h o le g ro u p o f foreign investors. O n e should also c o n s id e r the status and p a r t p la y e d by Polish m anagem ent in such banks.
D isc u ssio n about th e p la c e and role p la y e d by the foreign b a n k s , p a rtic u la rly in recent tim e s, has a grow ing te n d e n c y to stress d a n g e rs a r is in g from their ex iste n c e ra th e r that the p o s itiv e side. U ndoubtedly in e v a lu a tin g the situation o n e sh o u ld conduct a th o ro u g h and honest a n a ly s is an d c o n s id e r all the im p o rta n t aspects of it.
T ak in g into consideration the above m entioned m ain weaknesses o f th e b an k in g sector in Poland I w ould like to present h e re som e initiatives w h ich should be introduced in o rd er to raise its effectiveness, efficiency and security. T hey relate to the following issues:
1. A considerable strengthening of the capital o f Polish banks through, on one hand, their privatization, and on the other, by th e significant decrease in tax atio n and reserve requirem ents;
2. Increasing the co m p etitiv en ess of P o lis h banks through th e ir c o n so lid a tio n , low ering c o s ts , im proved m an ag e m en t;
3. Increased investm ent in com puter and telecom m unication systems; 4. Rationalizing the state and structure of w orkforce.
T h e condition of development of the banking system is its further privatization. The com plete privatization o f the Polish banking sector seems to be beyond discussion as only a totally private bank is able to locate financial means on the basis of purely economic criteria. Further privatization w ith the participation of foreign capital in indispensable since Poland does not have sufficient own capital. A lso the considerable presence of financial institutions on the Warsaw Stock E xchange should be taken into consideration.
The issues related to the state budget w ill continue to in flu en c e the decisions about the w ay o f privatizing Polish banks. The final evaluation o f the positive and negative results of the privatization of the banking sec to r w ill be possible after some years. However we should remember the already existing serious investors w ho fully appreciate the value o f Polish banks and are prepared to secure an effectiv e program for their developm ent.
In the n ex t few months there w ill take place a privatization o f three banks which jo in tly ow n 25.7% of the assets o f the Polish banking sector, i.e. Group PeKaO S.A., B an k Przem ysłowo-Handlowy from Kraków an d B ank Zachodni from W rocław. T heir privatization w ill largely determine th e shape of Polish banking for th e next few years.
The strengthening of the capital o f P olish banks can also succeed through a reduction in tax burden and the rate o f legal reserve. It w ould b e useful in such a case to intro d u ce tax relief for b anks on profits directed to increase their ownership cap ital. The lowering o f reserve requirements w o u ld result in the lowering o f interest rate charged by commercial banks, an d perhaps also increase th eir profitability. The best solution from the p oint o f view of banks would be also the change of tax regulations to treat the to tal o f appropriated reserves as co sts o f obtaining incom e. A t present, the introduction of the proposed chan g es in the taxation is no t likely, mainly due to th e state of public expenditure: it w ould result in a significant fall in tax revenue incom e.
The effectiveness and efficiency o f the banking sec to r can be greatly improved through its consolidation, low ering operational c o sts and improved management. Consolidation is usually understood as a m erger, take-over or co operation o f tw o or more banks in order to m aintain o r increase their com petitiveness. It is assisted by privatization. The grow ing com petition among European and Am erican banks resu lted in a recent w ave o f mergers. The liberalization o f Polish currency law s and the full opening o f our country in 1999 for fo reig n banks and increasing competition w ill defin itely speed up changes in th e banking sector. T here should be a concerted effo rt to create in Poland in the n ex t few years two to th ree strong financial gro u p s offering a full range o f serv ices in all the areas o f the financial market co n tro lled by domestic capital. Such consolidation could b e aided by the take-over, within the privatization process, of some still state-ow ned banks by th e banks with a majority stake o f Polish capital. In th is way there could be created a part of Polish banking system sufficiently stro n g to compete with fo reig n banks.
The necessary condition enabling P olish banks to com pete effectively is to rationalize th e ir operational costs. It is particularly im portant n o w when there is a definite d ow nw ard trend in net p ro fit margins. In 1997, d e sp ite the fact that the majority o f banks recorded profits, their general p ro fitability fell in comparison to the previous year. T his w as caused by grow ing operational costs,
n am ely higher costs o f m aintaining their b ra n ch es, staff rem uneration, p u rc h asin g new computer system s, high legal reserv es and premium paid in to the B a n k Guarantee Fund.
In th e situation of fa ilin g n e t profit m argins, p a rtic u la r im portance re s ts on th e issu e of correct m an ag em en t of bank ris k s , m eaning the u se o f a d v a n c e d m ethods of a p p ra isa l and control o f th e r is k based on the a c c e p te d q u a n tita tiv e methods aid ed b y com puter tech n o lo g y . A lso there sh o u ld b e im p le m e n te d some o rg a n iz a tio n a l changes at th e b a sis of which th e re a re p ro f it ce n tres built around b a s ic groups of p ro d u c ts, clien ts, or the lo c a tio n o f t h e i r users.
In P o lish conditions th e im provem ent of the q u a lity o f services re n d e re d re m a in s o f param ount im p o rtan ce . This can b e achieved through th e e x te n d e d application o f c o m p u te r and telec o m m u n ica tio n system s. B a n k s s h o u ld o ffer more and c h e a p e r services based on elec tro n ic banking, b o th fo r in d iv id u a ls and c o m p a n ie s. Every bank s h o u ld possess an in te g ra te d in fo rm a tio n system in c lu d in g all its branches. T h is w ould allow lo w e r u n it c o sts o f particular banking p ro d u c ts and better a n d m o re effective d e c is io n m a k in g at all m anagem ent lev els. The delays in im plem enting c o m p u te r sy ste m s in Polish banking c o u ld be its chance to m a k e a leap re ach in g f o r th e w o r ld ’s latest te c h n o lo g ic a l solutions.
T h e last group o f issu e s related to in c re a s in g th e effectiveness a n d e ffic ie n c y of Polish banks is related to the ra tio n a liz a tio n of the sta te a n d s tru c tu re o f the w orkforce. A t present 33% o f b a n k staff are u n iv e rs ity g ra d u a te s , 58% c o m p le te d secondary e d u c a tio n ; such a s tru c tu re c o rre sp o n d s with the p re s e n t level of develo p m en t in P olish banking. In th e n e a r fu tu re , due to the w id e r application o f c o m p u te r technologies, th e n u m b e r o f simple ro u tin e operatio n s will fa ll. A t the same tim e n e w ly in tro d u c e d banking p ro d u c ts w ill require h igher q u a lific a tio n s on the p a r t o f th e p e rso n n e l offering th em . It w ill require c h a n g e s in the staff p ro fe ssio n a l stru c tu re , which can be conducted through tra n s fe rs , changes in j o b d e s c rip tio n and directing s ta f f developm ent. O u r banks still su ffer h ig h le v e ls o f fluctuation a m o n g the best qualified p e rso n n e l; their le a v in g is u s u a lly a big loss for th e ir em ployers. T herefore sp e c ia l program sh o u ld b e c r e a te d giving them o p p o rtu n itie s of further p ro fe s s io n a l developm ent a n d o ff e rin g earnings co m p atib le w ith their abilities.
It should be m entioned th a t Polish banks em ploy a high number o f B ritish p e o p le o f Polish origin. B anks should actively seek highly-qualified staff a m o n g P o lish communities abroad w h ich would accelerate ac cess to the most ad v a n ced b a n k in g technology for our banks.
The issues related to the state budget will continue to in flu en c e the decisions about the w ay o f privatizing Polish banks. The final evaluation o f the positive and negative results of the privatization o f the banking sec to r w ill be possible after som e years. However we should remember the already existing serious investors w ho fully appreciate the value o f Polish banks an d are prepared to secure an effectiv e program for their developm ent.
In the n ex t few months there will take place a privatization o f three banks which jo in tly ow n 25.7% of the assets o f the Polish banking sector, i.e. Group PeKaO S .A ., B ank Przemysłowo-Handlowy from Kraków an d B ank Zachodni from W rocław . Their privatization w ill largely determine th e shape of Polish banking fo r the next few years.
The strengthening of the capital o f Polish banks can also succeed through a reduction in tax burden and the rate o f legal reserve. It w ould b e useful in such a case to introduce tax relief for banks on profits directed to increase their ownership cap ital. The lowering o f reserve requirements w o u ld result in the lowering o f interest rate charged by commercial banks, and perhaps also increase th e ir profitability. The best solution from the p o in t o f view of banks would be also the change of tax regulations to treat the to tal o f appropriated reserves as co sts of obtaining incom e. At present, the introduction of the proposed chan g es in the taxation is no t likely, mainly due to the state of public expenditure: it would result in a significant fall in tax revenue incom e.
The effectiveness and efficiency o f the banking sec to r can be greatly improved through its consolidation, low ering operational co sts and improved management. Consolidation is usually understood as a m erger, take-over or co operation o f tw o or more banks in order to m aintain o r increase their com petitiveness. It is assisted by privatization. The grow ing com petition among European and American banks resulted in a recent w ave o f mergers. The liberalization o f Polish currency law s and the full opening o f our country in 1999 for fo reig n banks and increasing competition w ill definitely speed up changes in th e banking sector. T here should be a concerted effo rt to create in Poland in th e next few years two to th ree strong financial g ro u p s offering a full range o f services in all the areas o f the financial market c o n tro lled by domestic capital. S u ch consolidation could b e aided by the take-over, within the privatization process, of some still state-ow ned banks by th e banks with a majority stake o f Polish capital. In th is way there could be created a part of Polish bank in g system sufficiently strong to compete with fo reig n banks.
The necessary condition enabling P olish banks to com p ete effectively is to rationalize th e ir operational costs. It is particularly im portant n o w when there is a definite dow nw ard trend in net p ro fit margins. In 1997, d e sp ite the fact that the m ajority o f banks recorded profits, their general profitability fell in comparison to the previous year. T his w as caused by grow ing operational costs,
nam ely higher costs o f m aintaining their b ra n ch es, staff rem uneration, pu rc h asin g new com puter system s, high legal re serv es and premium paid in to the B an k Guarantee Fund.
In th e situation o f fa ilin g n et profit m argins, p a rtic u la r im portance re s ts on th e issue of co rrect m anagem ent of b an k ris k s , m eaning the u s e o f a d v a n c e d methods o f a p p ra isa l and control o f th e ris k based on the a c c e p te d q u a n tita tiv e methods aid e d by com puter tech n o lo g y . A lso there sh o u ld b e im p le m e n te d some o rg a n iz a tio n a l changes at th e b asis of which th e re a re p ro f it centres built aro u n d b a sic groups o f p ro d u c ts , clients, or the lo c a tio n o f th e ir users.
In P o lish conditions th e im provem ent o f th e q u a lity o f services re n d e re d re m a in s of param ount im portance. This ca n b e achieved through th e e x te n d e d application o f c o m p u te r and tele c o m m u n ic a tio n system s. B a n k s s h o u ld offer more and c h e a p e r services based on electronic banking, b o th fo r in d iv id u als and c o m p a n ie s. Every bank s h o u ld possess an in te g ra te d in fo rm a tio n system in c lu d in g all its branches. T h is w ould allow lo w e r u n it c o sts o f particular b a n k in g prod u cts and b e tte r a n d m ore effective d e c is io n m a k in g at all m anagem ent levels. The d elay s in im plem enting c o m p u te r sy ste m s in Polish b an k in g c o u ld be its ch an ce to m ake a leap re a c h in g fo r th e w o r ld ’s latest te c h n o lo g ic a l solutions.
T h e last group o f issu e s related to in c re a s in g the effectiveness a n d e ffic ie n c y of Polish b an k s is related to the ra tio n a liz a tio n of the sta te a n d s tru c tu re of the w o rk fo rce . A t present 33% o f b a n k staff are u n iv e rs ity g ra d u a te s , 58% c o m p le te d secondary e d u c a tio n ; such a s tru c tu re c o rre sp o n d s with the p re s e n t level of d ev e lo p m e n t in Polish banking. In th e n e a r fu tu re, due to the w id e r application o f c o m p u te r technologies, th e n u m b e r o f simple ro u tin e operations w ill fa ll. A t the same tim e n e w ly in tro d u c e d banking p ro d u c ts w ill require h ig h e r q u alifica tio n s on the p a r t o f th e p erso n n el offering th e m . It will require c h a n g e s in the staff p ro fe s s io n a l s tru c tu re , which can b e conducted through tra n sfe rs, changes in j o b d e s c rip tio n and d irec tin g s ta ff developm ent. O u r banks still su ffe r h ig h le v e ls o f fluctuation a m o n g the best q u alified p erso n n el; their le a v in g is u s u a lly a big loss for th e ir em ployers. T h erefo re sp ec ia l program s h o u ld b e c r e a te d giving them o p p o rtu n itie s of further p ro fe ssio n a l d evelopm ent a n d o ffe rin g earnings c o m p a tib le w ith their ab ilities.
It should be m entioned th at Polish banks em ploy a high number o f B ritish p e o p le o f Polish origin. B an k s should actively seek highly-qualified staff a m o n g P o lish communities abroad w hich would accelerate access to the most ad v an ced b a n k in g technology for o u r banks.
4. CLOSING REMARKS
The P o lish banking sector fa ces p o sitiv e developm ent persp ectiv es. The adjustm ent p ro c esses connected w ith our future m em b ersh ip in the EU are conducted in th e banking secto r in a satisfactory way. U ndo u b ted ly it is strongly in flu e n c e d by pressures o f com petition, new c a p ita l and organi zational so lu tio n s. The Polish b a n k in g market becom es m o re open as we im plem ent o u r obligations from th e agreem ent with th e O E C D and the EU. All these w ill contribute to the sp e e d y introduction to P o lis h banking of the tendencies e x is tin g in the w orld fin a n c ia l markets.
N aturally there remain some dangers to the realization o f the adjustment processes. I th in k however that they w ill be noticed in good tim e by the state and banking authorities as well as the banking world, and th e right measures to counteract n egative aspects will be introduced.
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