Capital Markets and Portfolio Investment

The Polish regulatory system is effective in encouraging and facilitating portfolio investment.  Both foreign and domestic investors may place funds in demand and time deposits, stocks, bonds, futures, and derivatives.  Poland’s equity markets facilitate the free flow of financial resources.  Poland’s stock market is the largest and most developed in Central Europe.  In September 2018, it was reclassified as developed market status by FTSE Russell’s country classification report.  The stock market’s capitalization amounts to around 48 percent of GDP.  Although the Warsaw Stock Exchange (WSE) is itself a publicly traded company with shares listed on its own exchange after its partial privatization in 2010, the state retains a significant percentage of shares which allows it to control the company.  WSE has become a hub for foreign institutional investors targeting equity investments in the region.

In addition to the equity market, Poland has a wholesale market dedicated to the trading of treasury bills and bonds (Treasury BondSpot Poland).  This treasury market is an integral part of the Primary Dealers System organized by the Finance Ministry and part of the pan-European bond platform.  Wholesale treasury bonds and bills denominated in PLN and some securities denominated in Euros are traded on the Treasury BondSpot market.  Non-government bonds are traded on Catalyst, a WSE managed platform.  The capital market is a source of funding for Polish companies.  While securities markets continue to play a subordinate role to banks in the provision of finance, the need for medium-term financial support for the modernization of the electricity and gas sectors is likely to lead to an increase in the importance of the corporate bond market.  The Polish government acknowledges the capital market’s role in the economy in its development plan.  Foreigners may invest in listed Polish shares, but they are subject to some restrictions in buying large packages of shares.  Liquidity remains tight on the exchange.

The Capital Markets Development Strategy, published in 2018, identifies 20 key barriers and offers 60 solutions.  Some key challenges include low levels of savings and investment, insufficient efficiency, transparency and liquidity of many market segments, and lack of taxation incentives for issuers and investors.  The primary aim of the strategy is to improve access of Polish enterprises to financing.  The strategy focuses on strengthening trust in the market, improving the protection of individual investors, the stabilization of the regulatory and supervisory environment and the use of competitive new technologies.  The strategy is not a law, it sets the direction for further regulatory proposals.  Poland is one of the most rigorously supervised capital markets in Europe according to the European Commission.

The Employee Capital Plans program (PPK)—which is designed to increase household saving to augment individual incomes in retirement—could provide a boost to Poland’s capital markets and reduce dependence on foreign saving as a source for investment financing.  The program has been halted due to the outbreak of the COVID-19 pandemic.

High-risk venture capital funds are becoming an increasingly important segment of the capital market.  The market is still shallow, however, and one major transaction may affect the value of the market in a given year.  The funds remain active and Poland is a leader in this respect in Central and Eastern Europe.

Poland provides full IMF Article VIII convertibility for current transactions.  Banks can and do lend to foreign and domestic companies.  Companies can and do borrow abroad and issue commercial paper, but the market is less robust than in Western European countries or the United States.  The Act on Investment Funds allows for open-end, closed-end, and mixed investment funds, and the development of securitization instruments in Poland.  In general, no special restrictions apply to foreign investors purchasing Polish securities.

Credit allocation is on market terms.  The government maintains some programs offering below-market rate loans to certain domestic groups, such as farmers and homeowners.  Foreign investors and domestic investors have equal access to Polish financial markets.  Private Polish investment is usually financed from retained earnings and credits, while foreign investors utilize funds obtained outside of Poland as well as retained earnings.  Polish firms raise capital in Poland and abroad.

Recent changes in the governance structure of the Polish Financial Supervisory Authority (KNF) are aimed at increasing cross governmental coordination and a better-targeted response in case of financial shocks, while achieving greater institutional effectiveness through enhanced resource allocation.  KNF’s supplementary powers have increased, allowing it to authorize the swift acquisition of a failing or likely to fail lender by a stronger financial institution.

Money and Banking System

The banking sector plays a dominant role in the financial system, accounting for about 70 percent of financial sector assets.  The sector is mostly privately owned, with the state controlling about 40 percent of the banking sector and the biggest insurance company.  Poland had 30 locally incorporated commercial banks at the end of December 2019, according to KNF.  The number of locally-incorporated banks has been declining over the last five years.  Poland’s 538 cooperative banks play a secondary role in the financial system, but are widespread.  The state owns eight banks.  Over the last few years, growing capital requirements, lower prospects for profit generation and uncertainty about legislation addressing foreign currency mortgages has pushed banks towards mergers and acquisitions.  KNF welcomes this consolidation process, seeing it as a “natural” way to create an efficient banking sector.

The Polish National Bank (NBP) is Poland’s central bank.  At the end of 2019, the banking sector was overall well capitalized and solid.  Poland’s banking sector meets European Banking Authority regulatory requirements.  The share of non-performing loans is close to the EU average and recently has been falling.  In December 2019, non-performing loans were 6.6 percent of portfolios.  According to the S&P Rating Agency, Poland’s central bank is willing and able to provide liquidity support to the banking sector, in local and foreign currencies, if needed.

The banking sector is liquid, profitable and major banks are well capitalized, although disparities exist among banks.  This was confirmed by NBP’s Financial Stability Report and stress tests conducted by the central bank.  Profitability increased 12.5 percent in 2019 as a result of solid GDP growth, a pickup in investments and low provisioning costs, and remained at a reasonable level (ROE at 7.0 percent in 2019).  Nevertheless, profits remain under pressure due to low interest rates, the issue of conversion of Swiss francs mortgage portfolios into PLN, and a special levy on financial institutions (0.44 percent of the value of assets excluding equity and Polish sovereign bonds).  The ECJ issued a judgement in October 2019 on mortgages in Swiss francs, taking the side of borrowers.  The ECJ annulled the loan agreements, noting an imbalance between the parties and the use of prohibited clauses.  An additional financial burden for banks resulted from the necessity to return any additional fees they charged customers who repaid loans ahead of schedule.

Since 2015, the Polish government established an active campaign aiming to increase the market share of national financial institutions.  Since 2017, Polish investors’ share in the banking sector’s total assets exceeds the foreign share in the sector.  The State controls around 40 percent of total assets, including the two largest banks in Poland.  These two lenders control about one third of the market.  Rating agencies warn that an increasing state share in the banking sector might impact competitiveness and profits in the entire financial sector. There is concern that lending decisions at state-owned banks could come under political pressure.  Nevertheless, Poland’s strong fundamentals and the size of its internal market mean that many foreign banks will want to retain their positions.

The financial regulator has restricted the availability of loans in euros or Swiss francs in order to minimize the banking system’s exposure to exchange risk resulting from fluctuations.  Only individuals who earn salaries denominated in these currencies continue to enjoy easy access to loans in foreign currencies.

In 2019, NBP had relationships with 26 commercial and central banks and was not concerned about losing any of them.

Foreign Exchange and Remittances

Foreign Exchange

Poland is not a member of the Eurozone; its currency is the Polish zloty.  The current government has shown little desire to adopt the Euro (EUR).  The Polish zloty (PLN) is a floating currency; it has largely tracked the EUR at approximately PLN 4.2-4.3 to EUR 1 in recent years and PLN 3.7 – 3.8 to USD 1.  Foreign exchange is available through commercial banks and exchange offices.  Payments and remittances in convertible currency may be made and received through a bank authorized to engage in foreign exchange transactions, and most banks have authorization.  Foreign investors have not complained of significant difficulties or delays in remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties, or management fees.  Foreign currencies can be freely used for settling accounts.

Poland provides full IMF Article VIII convertibility for currency transactions.  The Polish Foreign Exchange Law, as amended, fully conforms to OECD Codes of Liberalization of Capital Movements and Current Invisible Operations.  In general, foreign exchange transactions with the EU, OECD, and European Economic Area (EEA) are accorded equal treatment and are not restricted.

Except in limited cases which require a permit, foreigners may convert or transfer currency to make payments abroad for goods or services and may transfer abroad their shares of after-tax profit from operations in Poland.  In general, foreign investors may freely withdraw their capital from Poland, however, the November 2018 tax bill included an exit tax.  Full repatriation of profits and dividend payments is allowed without obtaining a permit.  A Polish company (including a Polish subsidiary of a foreign company), however, must pay withholding taxes to Polish tax authorities on distributable dividends unless a double taxation treaty is in effect, which is the case for the United States.  Changes to the withholding tax in the 2018 tax bill increased the bureaucratic burden for some foreign investors (see Section 2).  The United States and Poland signed an updated bilateral tax treaty in February 2013 that the United States has not yet ratified.  As a rule, a company headquartered outside of Poland is subject to corporate income tax on income earned in Poland, under the same rules as Polish companies.

Foreign exchange regulations require non-bank entities dealing in foreign exchange or acting as a currency exchange bureau to submit reports electronically to NBP at http://sprawozdawczosc.nbp.pl .  An exporter may open foreign exchange accounts in the currency the exporter chooses.

Remittance Policies

Poland does not prohibit remittance through legal parallel markets utilizing convertible negotiable instruments (such as dollar-denominated Polish bonds in lieu of immediate payment in dollars).  As a practical matter, such payment methods are rarely, if ever, used.

Sovereign Wealth Funds

The Polish Development Fund (PFR) is often referred to as Poland’s Sovereign Wealth Fund.   PFR is an umbrella organization pooling resources of several governmental agencies and departments, including EU funds.  A strategy for the Fund was adopted in September 2016, and it was registered in February 2017.  PFR supports the implementation of the Responsible Development Strategy.

The PFR operates as a group of state-owned banks and insurers, investment bodies, and promotion agencies.  The budget of the PFR Group initially reached PLN 14 billion (USD 3.5 billion), which managers estimate is sufficient to raise capital worth PLN 90-100 billion (USD 22-25 billion).  Various actors within the organization can invest through acquisition of shares, through direct financing, seed funding, and co-financing venture capital.  Depending on the instruments, PFR expects different rates of return.

In July 2019, the President of Poland signed the Act on the System of Development Institutions.  Its main goal is to formalize and improve the cooperation of institutions that make up the PFR Group, strengthen the position of the Fund’s president and secure additional funding from the Finance Ministry.  The group will have one common strategy.  The introduction of new legal solutions will increase the efficiency and availability of financial and consulting instruments.  An almost four-fold increase in the share capital will enable PFR to significantly increase the scale of investment in innovation and infrastructure and will help Polish companies expand into foreign markets.  While supportive of overseas expansion by Polish companies, the Fund’s mission is domestic.

PFR plans to invest PLN 2.2 billion (USD 520 million) jointly with private-equity and venture-capital firms and PLN 600 million (USD 140 million) into a so-called fund of funds intended to kickstart investment in midsize companies.

Since its inception, PFR has carried out over 30 capital transactions, investing a total of PLN 8.3 billion (approx. USD 2 billion) directly or through managed funds.  PFR, together with the support of other partners, has implemented investment projects with a total value of PLN 26.2 billion (approx. USD 6.5 billion).  The most significant transactions carried out together with state-controlled insurance company PZU S.A. include the acquisition of 32.8 percent of the shares of Bank Pekao S.A. (PFR’s share is 12.8 percent); the acquisition of 100 percent of the shares in PESA Bydgoszcz S.A. (a rolling stock producer); and the acquisition of 99.77 percent of the shares of Polskie Koleje Linowe S.A.  PFR has also completed the purchase, together with PSA International Ptd Ltd and IFM Investors, of DCT Gdansk, the largest container terminal in Poland (PFR’s share is 30 percent).

In April 2020, the President of Poland signed into law an amendment to the law on development institution systems, expanding the competencies of PFR as part of the government’s Anti-Crisis Shield.  The amendment expands the competences of PFR so that it can more efficiently support businesses in the face of the coronavirus epidemic.  The fund will provide PLN 100 billion (USD 25 billion), in financial support for companies, known as the Financial Shield.

Poland is not eligible for DFC programs outside of energy infrastructure projects.  Post is not aware of any existing agreements between Poland and OPIC.

* In Poland, the National Bank of Poland (NBP) collects data on FDI.  An annual FDI report and data are published at the end of the following year.  GDP data are published by the Central Statistical Office.  Final annual data are available at the end of May of the following year.

Results of table are consistent with the data of the National Bank of Poland (NBP).  NBP publishes FDI data in October/November.
A number of foreign countries register businesses in the Netherlands, Luxemburg and Cyprus, hence results for these countries include investments from other countries/economies.

Note: NBP publishes only total amounts of portfolio investment assets.
Results of the table are consistent with data from the National Bank of Poland (NBP). NBP publishes FDI data in October/November.
A number of foreign countries register businesses in the Netherlands, Luxemburg and Cyprus hence results for these countries include investments from other countries/economies.