NBP: There was no credit crunch in Poland, the risk has decreased

Fears about the risk of excessive reduction in credit supply, the so-called credit crunch, which was feared at the beginning of the pandemic, assesses the National Bank of Poland (NBP) in the "Report on the stability of the financial system". According to the NBP, there are no signs of excessive loosening of lending policy by banks.

"The phenomenon of credit crunch, which was feared at the beginning of the pandemic, does not exist. In the second half of 2020, overall credit growth turned negative, but this was to a large extent due to a decline in demand for credit, rather than an excessive restriction by banks in credit availability. The demand of enterprises for bank loans was to some extent replaced by government fiscal support. Housing loans were the only loan category whose dynamics remained positive. After a slowdown in Q2 2020, demand for these loans recovered, and at the beginning of 2021 the value of granted loans was higher than a year earlier. It was accompanied by high activity and gradual increase in prices on the real estate market. However, there are no signs of excessive loosening of lending policy by banks," the report reads.

The central bank notes that since the outbreak of the pandemic, there has been a significant slowdown in lending, which, however, was not a manifestation of credit crunch, and the risk of such a phenomenon has decreased.

"Although in the second half of 2020, the overall loan growth rate turned negative, it was to a large extent caused by a decline in loan demand, not an excessive restriction by banks in the availability of loans. Changes in dynamics were different in individual loan categories," the report reads.

The dynamics of working capital loans for enterprises fell the most, and they were largely replaced by the government's fiscal support granted to enterprises. The growth rate of consumer loans also declined significantly, mainly due to a decline in demand, as well as due to a certain reduction in the supply of more risky (high-value) types of loans. On the other hand, the housing loan retained its pre-pandemic dynamics.

"The anticipated improvement in the economic situation in the coming quarters should favor a gradual recovery in loan demand, although the scale of this recovery will probably differ in individual loan categories. Another factor increasing the demand for housing and housing loan may be the Polish Deal program, but the assessment of its effects will be possible after specifying the details of the program," also written in the report.

At the same time, the NBP emphasizes that despite the lack of confirmation of the credit crunch phenomenon, uncertainty about the future propensity and ability of banks to increase credit supply still exists. It depends, inter alia, from the course of the pandemic, protective measures and future credit losses, and, above all, from the impact on the situation of banks of write-offs for legal risk related to FX housing loans.

"Currently, the risk of an excessive reduction in credit supply (credit crunch) could result not from excessive credit expansion in the past, but from the effects of a pandemic and increased write-offs for legal risk generating uncertainty about the future financial condition of banks and - as a result - their ability to create credit, " the report states.

Source: NBP and ISBnews