There Will Be Room for Banks - interview for Dziennik Gazeta Prawna

Cezary Stypułkowski in an interview with Łukasz Wilkowicz

Has any journalist had the chance to ask you why you joined Pekao? 

Many people have asked me about this.

And what is your response? 

There are two circumstances. One, I have always believed that Pekao SA is the best banking platform in Poland. It’s had very good retail customers, affluent customers with foreign currency accounts. It covered all of Poland with its branch network, and it was recognisable. Once it on-boarded three regional banks and then swallowed the best part of BPH, it was well-balanced, with a strong corporate and retail pillar. I have always been interested in this bank. In 1990, the then CEO of Pekao Marian Kanton suggested that I become his deputy. He is dead now, so you’ll have to take my word for it. I even wrote Pekao’s investment banking development concept for him at the time.

You then became CEO of Bank Handlowy. I thought, if there was a personal motivation, it was a way of trying to form a group with Pekao.

By the mid-1990s, it was clear that banks had to be bigger, that the concept of regional banks would not survive in the long term. Poland is too small a country for specialist banks. We were in a serious dialogue with Kanton. Both banks at the time had an international scope. Handlowy was present in Vienna, London, Luxembourg and Frankfurt. Pekao operated in Tel Aviv, Paris and New York. We were both in Luxembourg. This created the basis for a serious Polish bank, scalable, with a certain presence abroad.

What do you mean by scalable?

A bank that can play a fairly important role domestically and at the same time expand abroad. Handlowy and Pekao combined had around 20 percent market share, a little more in some segments. I tried to get the decision-makers at the time interested in this project. I still have the presentation, and I took it to the meeting with the supervisory board which interviewed me. But at the time, I wasn’t able to convince them.

Though the newspapers did cover it.

Yes, the newspapers covered it. To pitch the idea, I said things like ‘I would rather rely on the benevolence of the Minister of the Treasury than be a foreman in a foreign company. The word foreman even made it into the title of an interview.

And did they offer you the job, or did you find out about the position and get interested?

It was no secret that I was leaving mBank. It would have happened anyway in 2025. What can I say? I believe that I am intellectually stimulated and energetically agile, and therefore fit to do the job. I have said on many occasions that there is a limit to a CEO’s term in every institution. Ten years is a lot of time to do something.

By a good platform, do you mean a bank that has a lot of branches?

A bank that has a good balance sheet, the right presence, recognition, a specific customer profile, and competent staff.

As for recognisability, the ads always have to say, “the one with the bison”.

This is a weakness. But we have a history. Here is a bank report from 1934. PKO BP did not exist until 1987. It used to be part of the NBP. I was recently at a meeting with investors where I was explaining the potential acquisition of Alior Bank. I was asked why we were doing it, and what came to mind was the phrase “to make Pekao great again for a centennial.” After all, we live in post-MAGA times (“make America great again” is Donald Trump’s slogan - ed.). 2029 will mark the bank’s 100th anniversary.

Luckily for you, the other, or first PKO now prefers to go by the name Bank Polski.

They may eventually drop the first part of that name.

And what will happen on the centenary? Will Pekao SA overtake PKO BP to become the largest bank in Poland?

I cannot promise that. It is not that simple.

Will the bank expand abroad?

I don’t think so. With this scale of operation and with the bank tax in Poland, it makes no sense to expand abroad.

Why not? Other countries also have a bank tax.

The 44-point (in basis points, i.e. 0.44 percent - ed.) charge on assets is simply devastating from the perspective of competitiveness, especially with low interest rates. mBank has branches in the Czech Republic and Slovakia. It was very difficult for us to compete with Czech and Slovak banks. The burden was incomparably heavier in Poland. Note that the tax in Poland is also levied on foreign assets.

The Ministry of Finance says it will change something regarding the tax.

I was lobbying for eight years to make foreign operations tax-free, as with mBank’s branches in the Czech Republic and Slovakia. Somehow, I couldn’t convince anyone.

It would be easier now. You represent a bank that is in fact state-owned.

But you need a model to plan an expansion. In my opinion, we are not equipped to manage an operation abroad.

Are you talking about Pekao or Polish banking in general?

In general. The one exception is mBank, which has a unique governance model. Plus, it had the advantage of offering mobile solutions when they were not yet widely available.

Let’s take a broader look: is Polish banking modern in terms of technological solutions? For many years, we’ve been told that our banks are very advanced. Is this true?

Yes, I think what we offer to retail customers, especially the transactional functions, is absolutely world-class. However, we have been unable to transplant this abroad. People love it but they are unwilling to replicate it.

Why is that?

The markets are still siloed. Fragmentation is a big problem. Take, for example, plugging into the payment systems of different countries: there is no pan-European system, each country has its own clearing house. As a result, scalability is difficult to achieve, cumbersome, and more expensive. At mBank, the main owner was ultimately not interested.

When the digital euro comes, will it make things easier?

No, that’s a long way off. And above all, you have to be part of the eurozone.

True, but you can have one branch in the eurozone and then the door is wide open.

This is the approach we took at mBank when considering further expansion. We set up an operation in Slovakia. It was well-tested, foolproof.

Let’s go back to how modern our banks are. We set the bar. But that was 30 years ago, when the system was launched that supported money transfer clearance within a day.

That’s not the point. There are three reasons why Polish banking, and I stress that I mean retail banking, is relatively well-advanced. One reason is the relatively efficient settlement infrastructure that has been built. The second point is that the banking sector knows how to cooperate even though there is a lot of competition.

“A gang.”

I’ll say it again, we have one of the most competitive markets in Europe.

The most expensive loans, the cheapest deposits.

You have to look at it in terms of real costs, not nominal costs. The interest margin in Poland was low for a long time, on the order of 2 percentage points. Now we are at 4 points because we’ve been flooded with money. A more malicious way to describe it is that, as an industry, we are constantly paying out money to Swiss franc borrowers who are placing the money into deposits.

There is trust in the banking sector.

You are trying to make a joke, but in my opinion it is true. Going back to cooperation: in addition to the National Clearing House, we created the Credit Information Bureau, then Blik, the Polish Payments Standard. These infrastructures represent a uniquely high standard. They were created at the initiative of banks and not, as in some countries, at the initiative of central banks.

And it was probably not that expensive. 

When I tell people around the world that we spent several dozen million euros on the Blik infrastructure, no one believes me. Globally, no one will even launch a project below EUR 200 million.

What has changed in our banking in the last, say, five years? Just to limit the discussion to recent events. 

First and foremost, Blik has conquered the payments market. It has actually destroyed the card companies. Cards in Poland still exist and will continue to be used, but Blik has eroded their growth potential. This is a phenomenon on a worldwide scale: the emergence of an infrastructure capable of pushing out two global players. E-commerce is practically controlled by Blik. ATM cash withdrawals with Blik are easier and safer than with a card.

Has anything changed for the worse? 

Weaknesses have brought banking to a halt. Credit as a proportion of GDP has shrunk, and bank balance sheets are swamped with treasuries. Customer contractual obligations have been undermined by the ‘lawyer bank heist’, which has shrunk the banks’ capital base in real terms. This was compounded by a centralisation of money distribution through government channels…

Does this affect the banks? 

It’s very simple. During the pandemic, PLN 200 billion was handed out and socked away in bank accounts. Businesses don’t need as much credit. The same is true of house-holds. During the pandemic, I did a field study in Mrągowo. I asked a friend to invite his business friends, from the undertaker to the hairdresser. I will always remember when the hairdresser said, “Good Lord, I have never in my life had so much money in my bank account.” 

Don’t misunderstand me, it had to be done, it was done all over the world, and we did it well. The US distributed USD 2 trillion. What the PFR and the banks did in Poland was phenomenal. This infrastructure was able to distribute the money in a fortnight while staying in control rather than handing out cheques like they did in the US. But the up-shot is that the banks were competing with very cheap money. This pushed out credit. It was compounded by a failure to honour commitments, which is lethal for banking. That includes Swiss franc borrowers and credit holidays. I like to say that the Polish school of banking is: borrow, don’t pay it back and get your debt reduced. I’ve been saying this for thirty-odd years now and unfortunately it is still applicable.

But the banks have been working all along, as you say, setting global standards. What will happen in five years’ time? What will our banking industry be like? What will push it forward?

I won’t say anything new. The potential offered, on the one hand, by the databases of the banks and the scale of the information therein and, on the other hand, the ability to use algorithms, will likely take us to a whole new level both in customer service and on the cost side. The revolution will be profound. And it will be very pronounced in five years from now.

What will things look like then? Will the bank know before I do that I need to take out a loan? 

We will have models that can anticipate customer behaviour.

Will I get a text message from the bank saying “Don’t go out because you may get hit by a tram today”? 

Have you been reading too much Bulgakov? We probably wouldn’t have warned Berlioz anyway... I think the next big thing in banking is, for example, PFM or personal finance management. I don’t want to inflate my previous company’s pride too much, but mBank already has some PFM tools. They are still quite modest, but will certainly improve.

You praise mBank a lot. If it was for sale and you were leading Pekao... 

This is not part of our plans, although, as you will recall, there were discussions in 2019. I spent a part of my professional life there and I know that it is a good bank.

What are the advantages of having the majority of the industry in the hands of Polish capital? Arguments in favour of the repolonisation of banks were that it would make us immune to changes in owner policies. But the proportion of credit to GDP has shrunk in recent years. More Polish capital in the banks did not help. 

We are living in very turbulent times. Speaking of the last five years, first the whole world was recovering from the post-2008 troubles and then the Southern European debt crisis. These two events did not affect us, but we suffered through the Swiss franc loan trauma, which certainly changed the behaviour of the banks. Then came the pandemic and the industry was flooded with money, with consequences such as inflation. If the government issued PLN 200 billion and pumped it into the economy without any underlying goods, inflation had to devour some of the glut. That’s just calling a spade a spade. 

Companies have cash and aren’t investing it. Partly because there is a lot of uncertainty. Just a few days ago, I talked to a serious Polish businessman whose sales are a billion zlotys, 80 percent of which go abroad. A flagship company. He told me about the problems caused by the fact that demand in the West has dwindled. There has been a concentration of certain distribution functions. He said, “If 40 percent of my production goes to a single buyer, I’m as good as dead. They will dictate the price to me. How can I adjust my costs when energy prices and labour costs are rising? How can I hope to be competitive?”

And then there is one other thing. Again, I will speak from my own experience. Last year, I had a series of meetings with clients. A post-pandemic roadshow around Poland. Most of those clients were medium-sized companies. This is not a statistical picture, but I think it captures the thinking well. What is their thinking like? “Do I get a special economic zone? Good.” “Do I get EU subsidies? Good.” It even seems to me that some of the choices people make come from this way of thinking. So there are many reasons behind the lack of demand for bank credit. But there will be room for banks.

I’ve asked you about the benefits of having domestically owned banks. 

Surely the decision-making process in an institution that is firmly rooted in the local market takes account of its specificities to a greater extent. I like to say that a foreign bank can keep a local bank on a short or a long leash and set risk limits as part of its own policy, constraining the activity of the local operation. By the way, I have never believed that banks should be stateowned. However, I think it is key to have structures to ensure that decision-making processes are linked to the local market. This is a strength not only of the largest banks but also of local cooperative banks.

Will our banks be able to compete on the European market? They do not need to conquer Europe. The point is that they should successfully defend their position. 

Due to historical developments, we lack two, or maybe even one domestic bank strong enough to have a systematic ability to attract foreign capital.

Like OTP in Hungary? 

This analogy only goes so far because Hungary today is not the darling of the markets. But for a long time they had that capacity. I had something like that in mind when I proposed the merger between Handlowy and Pekao years ago. That would have created a bank big enough to have the capacity to attract significant quality capital. The question is not how to conquer the market, there is a lot of capital around the world. We need to tame it, attract that capital to us. We have succeeded in Poland to some extent thanks to foreign banks. For example, we have attracted Swiss francs. That created a housing programme without government participation, financed by imported capital.

Many people believe that programme was fraudulent.

I do not agree. And it’s easy for me to say because, as I always stress, I wasn’t there when those loans were sold. Attracting capital became easier with EU accession. The perception of the Polish market, local banks, the sustainability of obligations changed. Foreign banks have a large role to play, but they operate within certain limits. Each foreign bank sets a sovereign risk limit. A local bank has a completely different behavioural model. In this sense, I advocate for a mix where there is room for large local banks and banks with international ambitions. I don’t know any large country where that is not the case.

What will the structure of the Polish banking industry be like in five years? Today, we have fewer than 10 banks that are genuinely competing with each other.

I think that we will see consolidations that will not be initiated in Poland. It remains to be seen how capital market integration in Europe will unfold. What will be important is what happens globally. The question is how Europe will find its bearings in all that. It is apparent that a fragmentation of the world is underway. When globalisation stopped working for the Americans, they cancelled it. Paradoxically, in my opinion, this is a unique moment in history for Europe. If we don’t wake up and create a single market with a continental infrastructure, we will miss the opportunity.

The interview was published in “Dziennik Gazeta Prawna” (Davos, January 2025)