Poland’s Flabby Flexed Muscle
Polish shares tried to regain January footing following a GDP growth pause to the 1 percent range and the sudden departure of the Warsaw Exchange boss, who had pushed sub-regional hub ambitions, in a film financing scandal targeting listed companies. Sentiment improved after the government sold another chunk of PKO bank for $1.5 billion and tapped external bond markets at meager yields, alongside an application to renew and expand the IMF’s flexible credit line for $35 billion over two years. The Fund urged extension of the original 2008 crisis facility in light of Euro area trade and banking “shock vulnerability.” Manufacturing is “heavily integrated” into the German supply network and two-thirds the financial system and one-third of local debt are foreign-owned. Disorderly deleveraging and global risk appetite retreat remain risks, and to supplement the multilateral backstop the central bank entered a bilateral currency swap with its Swiss counterpart. The regulator has stiffened standards for mortgages and FX loans, and medium-term sustainability within the constitutional 55 percent of GDP debt limit should be enhanced by pension higher retirement age eligibility. Private sector annual credit growth is off two-thirds to 5 percent, and confidence, industrial and retail figures have fallen sharply as official unemployment heads toward 15 percent. Core inflation below 2 percent has allowed a cycle of monetary easing and last year’s fiscal deficit was 3.5 percent of national income. Bank capital adequacy is 15 percent but NPLs are close to double-digits and parents have slashed support by $15 billion the past year. The statutory debt ceiling could be breached in 2013 with a new small business guarantee program, and supervisors may soon relax household curbs in response to the sluggish economy. The current account imbalance has been covered by direct and portfolio investment and along with the exchange rate is “consistent with fundamentals,” according to the Fund Board submission. The FCL is still needed for international reserve reinforcement, especially as deep and liquid securities markets facilitate Central Europe’s greatest volatility reading. An adverse scenario contemplates large banking outflows leaving a $35 billion funding hole for both 2013 and 2014. The “very strong” policy record again justifies excess quota access, with the successor arrangement to go into place upon the current one’s Q1 expiry, it urges.
The loan-deposit ratio has increased slightly to the 100 percent level as neighbors’ measure has continued to decline from a steeper base. The BIS’ most recent tally shows cross-border withdrawal above 5 percent of GDP in Bulgaria, Croatia, Hungary and Slovenia. Kazakhstan and Ukraine slashed their exposure 50 percent since 2008 and in the Baltics credit availability shrank last year. Domestic deposit expansion has resulted from deleveraging and Basel III rules not only in Poland, but also Belarus, the Czech Republic, Romania and Turkey in a perverse show of strength.
