Transcript Presentation

The impact of the recent crisis
on the Polish economy
and the response of the National Bank of Poland
Zbigniew Hockuba
Member of the Board
National Bank of Poland
Challenges and Prospects of South East European Economies in the
wake of the financial crisis
Athens, October 16, 2009
1
With GDP growth of 1.1% in Q2 09, Poland is a bright
spot in recession-hit Europe
2
Limited direct impact of the crisis on the Polish economy...
• Relatively strong GDP growth so far (6.8% in 2007 and 4.9%
in 2008 and 1.1% in Q2 2009) and an above-zero forecast for
2009.
• Relatively balanced economy
– CA deficit of 2,7% (4-quarter average until Q2 2009)
financed safely by FDI’s, loans from mother companies and
trade credit
• Relatively good situation of the banking sector
– capital adequacy ratio of 12.9% as of July 2009
– low ratio of financial assets to GDP (roughly 1,04 in Poland
compared to CEE average of 1,23 and 4,36 in the euro area);
– no securitization;
– no exposure to high-risk assets connected to the sub-prime
sector
• The crisis that hit Poland in September 2008 was mainly a
crisis of confidence in the banking sector, imported from
global financial markets
3
Despite significant slowdown,
GDP growth in Poland remains positive…
8
7,5
6,9
7
6,6 6,6
6,6 6,6 6,6
6,3
6,1
6,0
6
5,9
5,4
5
4,7
4,0
5,0
4,8
4,3 4,4
4,2
4,0
4
3,2
3
2,9
2,4
2,2
2,4
2,4
1,9
2
1,2
1
1,0
1,1
0,9
0,8
0,5 0,6
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
4
…which distinguishes us from other European economies
%
GDP growth (y-o-y, %)
8
6
4
2
0
-2
-4
-6
-8
-10
2008
2009Q1
EU
BG
CZ
2009Q2
HU
PL
2009f
RO
SK
5
In September 2008 Poland suffered a sudden outflow of
portfolio capital from the stock market and the
government debt market (to a lesser extent)
2 000
85
1 500
80
1 000
Foreign holdings of Polish government debt
(PLN billion)
75
500
70
0
65
-500
60
-1 000
45
Ju
l-0
9
Ju
l-0
8
Ja
n09
40
Ju
l-0
7
Ja
n08
Ja
n07
Ap
r-0
7
Ju
l-0
O 7
ct
-0
7
Ja
n08
Ap
r-0
8
Ju
l-0
O 8
ct
-0
8
Ja
n09
Ap
r-0
9
-3 000
50
Ju
l-0
6
Ja
n07
-2 500
Net purchases
of stocks by
nonresidents
(PLN million)
Ju
l-0
5
Ja
n06
-2 000
55
Ja
n05
-1 500
6
The outflow of portfolio capital was coupled by a fall
in FDI…
35 000
30 000
Inflow of FDI
(PLN mln)
25 000
20 000
15 000
10 000
5 000
-0
9
8
M
ar
p0
Se
7
-0
8
M
ar
p0
Se
-0
7
6
M
ar
p0
Se
5
-0
6
M
ar
p0
Se
4
-0
5
M
ar
p0
Se
M
ar
-0
4
0
7
… and strong exchange rate depreciation
EUR/PLN
5,0
4,8
4,6
4,4
4,2
Increase
denotes
depreciation
4,0
3,8
3,6
3,4
6-2009
12-2008
6-2008
12-2007
6-2007
12-2006
6-2006
12-2005
6-2005
12-2004
6-2004
3,0
12-2003
3,2
8
The exchange rate acted as a shock-absorber
changing the structure of domestic demand
Even though total demand is falling, demand for goods and
services produced domestically rises, leading to a positive
contribution of net exports to GDP growth
30%
25%
per cent
20%
12
15%
10
Net exports
Inventories
Gross fixed capital formation
Total consumption
GDP
10%
8
5%
6
0%
4
-5%
2
-10%
Demand for goods produced in Poland
-15%
Demand for goods produced abroad
-2
-20%
Domestic demand - total
-4
0
Q
2
09
Q
1
20
09
Q
4
20
08
Q
3
20
08
Q
2
20
08
Q
1
20
08
Q
4
20
07
Q
3
20
07
Q
2
20
07
Q
1
20
07
Q
4
20
06
Q
3
20
06
Q
2
20
06
Q
1
20
06
20
20
06
q1
20
06
q3
20
07
q1
20
07
q3
20
08
q1
20
08
q3
20
09
q1
-6
-25%
9
But, during financial turmoil, floating exchange rate
also raises concerns about banks’ and households open
FX positions
The ratio of FX-denomintated loans
to total loans
45%
300
40%
250
35%
200
30%
150
25%
100
20%
15%
Households
10%
Corporates
5%
basis points
Margins in CHF/PLN
swaps
50
0
-50
-100
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
-150
Jul-07
May-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
0%
10
Banking sector risks were mitigated by funding from
foreign parent banks as well as FX swaps and repos
provided by the National Bank of Poland
Nonresident interbank funding
70
PLN bln
NBP’s „confidence package” funding
20
PLN bln
60
FX swap
15
50
Long-term
liabilities
40
10
Liquidity
providing
repos
30
5
20
Short-term
liabilities
0
10
Jul 09
May 09
Mar 09
Jan 09
Nov 08
Sep 08
Jul 08
May 08
Mar 08
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
Aug-08
Jun-08
Apr-08
Feb-08
Dec-07
Oct-07
Aug-07
Jun-07
Jan 08
-5
0
11
Credit risk related to FX-denominated mortgages
has not materialized so far
Even though households have less FX assets than liabilities – i.e. run open
FX positions – mortgages denominated in foreign currencies have the best
repayment performance in banks' loan portfolio.
Loans to households
Housing loans
- PLN denominated
- FX denominated
Consumer loans
Loans to corporates
2007
4,10%
1,20%
1,70%
0,70%
6,60%
6,90%
2008
3,50%
1,00%
2,00%
0,60%
6,60%
6,20%
III 2009
3,80%
1,10%
2,20%
0,70%
7,30%
7,90%
VI 2009
4,20%
1,20%
2,30%
0,80%
8,00%
10,00%
12
The NBP responded also by cutting interest rates
(from 6% in September to 3.5% in September’09)
Interest rate cuts together with longer-term refinancing operations
conducted as part of the "Confidence Package" contributed to the fall
of 3M interbank rates indexing the cost of credit in the economy.
%
8%
7%
6%
5%
4%
POLONIA
WIBOR3M
Stopa
referencyjna
Reference
rate
8-2009
7-2009
6-2009
5-2009
4-2009
3-2009
2-2009
1-2009
12-2008
11-2008
10-2008
9-2008
2%
8-2008
3%
13
Lessons learned
• The financial crisis draws attention to the risks inherent in FX
lending and – more importantly – to the build up of currency
mismatches on banks' balance sheets.
– In Poland such mismatches were hedged with the resort to off-balance
sheet instruments (e.g. FX swaps), but when the market dried up, the
NBP had to step in.
• The crisis has tested the viability of both fixed and floating
exchange rate regimes.
• Floating exchange provided considerable relief for the Polish
economy as an automatic stabiliser
– in good times, it limited the purchasing power of foreign currencies
through appreciation, probably slowing down the growth in asset prices;
– in bad times, it renders Polish exports more attractive through rapid
depreciation and thus provides the much-needed stimulus to the
economy.
14
The way forward…
• NBP expects positive growth of the Polish economy
both in 2009 and 2010.
• In 2010 a significant drop in inflation is forecasted
• At the same time current account deficit will improve
in 2009 and probably decline in 2010 as growth of
import recovers faster than growth of export
• Due to lagged recovery of the labour market
unemplyment rate may further rise.
• Policies to address the increasing government deficit
and debt will be necessary
15