Integrated Report 2021

Market and legal environment

Macroeconomic conditions


In the second half of 2021, the recovery of activity from the 2020 pandemic continues. Already in the first half of 2021, the Polish economy recovered from the restrictions imposed in 2020. In the third and fourth quarter of 2021, GDP in Poland continued its dynamic growth. Importantly, the economic recovery was increasingly widespread. In addition to private consumption, investments also rose. As a result, last year the Polish economy grew by 5.7%. The main growth driver was private consumption, which added 3.4 pp and investments, which accounted for around 1.3 pp of total dynamics. Before the outbreak of the war in Ukraine, our forecast was for GDP growth to weaken to around 4.5% in 2022. Currently, any revision to this forecast is difficult to quantify, not knowing how long the war will last, what additional sanctions on Russia will be introduced and what its retaliatory actions will be (e.g. limiting exports of oil, gas and other commodities), and what the political solution to this conflict will be. Increased uncertainty will probably limit investment activity of companies and possibly household consumption. On the other hand, spending on defence and aid for refugees from Ukraine will probably increase.

GDP for Q4 2021 by rapid estimate
Source: CSO

Business activity

Since the beginning of 2021, economic activity has gradually increased, with GDP exceeding pre-pandemic levels in the middle of the year. In the fourth quarter, industrial production increased by 13.0% y/y.. Growing external demand was the driving factor behind the increase in industrial production in Poland. This was also partly due to the effect of the low base from last year, but the impact of this factor in the second half of the year was much less than even in Q2,2021. Construction and assembly production is also gradually recovering. In Q4, construction production growth amounted to 6.3% y/y. Retail sales (in real value terms) have also been growing continuously since the second quarter. Much more lenient restrictions than last year contributed to satisfying consumer demand, resulting in a 9.0% annualised growth in the fourth quarter.


In 2021, the price level in Poland increased by 5.1% on an annual basis. While in the first half of the year the CPI inflation dynamics remained at or just above the inflation target set by the National Bank of Poland (i.e. 2.5% +/- 1 p.p.), it has clearly accelerated since June. In the third quarter, the average price level increased by 5.4% y/y, and in the fourth quarter the increase was already 7.7% y/y. The dynamic acceleration of inflation in Poland was largely due to the situation on global commodity markets. The increase in gas and oil prices translated into higher fuel and energy prices. In addition, disruptions in supply chains combined with the aforementioned increases in raw material prices resulted in higher production costs, which also accelerated CPI inflation in Poland. In addition to external factors, the increase in core inflation, which excludes energy and food prices, had a large impact on the acceleration of inflation. In Q3, it increased by 3.9% y/y, and in Q4, growth remained around 4.8% y/y. In the current year, a significant increase in energy prices (+54% gas, +24% electricity) will continue to drive inflation in Poland, although in the first months of the year, the impact of this factor will be somewhat mitigated by the Anti-Inflation Shield (reductions in VAT and excise taxes on electricity and gas). We also expect core inflation to remain high in 2022 due to low unemployment, among other factors. In addition, core inflation will be boosted by an increase in excise tax on alcohol and tobacco, which will increase its dynamics by about 0.2 p.p. starting from January. Potentially faster growth of energy commodity prices in the aftermath of the war in Ukraine and its impact on inflation may be limited by weaker economic growth, but most importantly by the extension of the government’s Anti-Inflation Shield

Source: CSO

Monetary policy

In October 2021, the Monetary Policy Council (MPC) decided to start a cycle of monetary policy tightening in Poland. By December last year it had made three increases amounting to a total of 165 bp to 1.75%. In February 2022 the MPC decided on a further increase in interest rates. The reference rate increased to 2.75%. According to President Adam Glapiński, the cycle will continue at least until the reference rate reaches 4.0%. In his opinion this is a level which would not have a negative impact on economic activity in Poland. As a result, we expect the MPC to continue raising interest rates at a rate of +50 bp at least until March. In our opinion, the MPC will continue to raise interest rates in the coming months, although the pace and scale of rate hikes will depend on the combination of economic growth, inflation and the exchange rate of the zloty, which is currently difficult to predict due to the war in Ukraine.

Source: CSO, NBP

Bonds market

Treasury bond yields in Poland in H2,2021 were mainly influenced by the situation on core markets (US and Eurozone) and domestic data on inflation, public debt, as well as investors’ expectations regarding the MPC’s future monetary policy. Especially the latter factor has clearly influenced the increase in yields of Polish government bonds. Since July 2021, the yield on Polish 10-year bonds has increased from 1.60% to 3.65% at the end of last year. The risk premium for long-term Polish bonds (as measured by the spread over 10-year German bonds) widened to over 380 bp at the end of the year, up from around 168-200 bp at the start of the year. The widening of the spread between bond yields, falling in the July-December period, was largely influenced by actions taken by the Monetary Policy Council in Poland.

Foreign exchange market

Source: Macrobond

In the second half of 2021, the USD/PLN exchange rate fluctuated in the range of 3.85-4.20 compared with 3.66-3.96 in the first half of the year. The greatest depreciation of the zloty occurred in early November, when the USD/PLN exchange rate exceeded the 4.00 level. This was associated with a strong appreciation of the dollar due to growing expectations of interest rate increases in the USA. In addition, a decrease in risk appetite in equity markets weakened demand for the zloty. The EUR/PLN exchange rate also behaved similarly, reaching its highest level since 2009, exceeding 4.70. The weakness of the zloty in the second half of the year was also evident in the case of the CHF/PLN currency pair, which in November exceeded the level of 4.50. Nevertheless, the last month of 2021 was marked by the appreciation of the zloty. Due to the sharp increase in uncertainty in the financial markets after Russia’s invasion of Ukraine, the zloty, as well as other regional currencies, weakened again and the EUR/PLN exchange rate reached 4.70.

Performance of the banking sector

Main categories of the banking sector profit and loss

In 2021, the net financial result of the banking sector in Poland, according to preliminary data from the Financial Supervision Authority (KNF), amounted to PLN 8.8 billion and was higher than the result achieved in 2020 by PLN 9.2 billion. In 2020, the banking sector recorded a loss of PLN 0.3 billion, mainly due to the establishment of significant reserves for legal risks relating to FX mortgage loans (mainly reserves created by one of the banks for the costs of settlements with customers holding FX mortgage loans). The net profit achieved in 2021 was determined by the improvement in the other result (which includes the aforementioned reserves for risks related to FX loans), the result from impairment losses and other reserves and the increase in net fee and commission income, which offset the decrease in interest income and the increase in operating expenses.

Reserves for legal risk related to FX housing loans are recognised by banks in other result (other operating expenses) or in the result from impairment losses and other provisions.

Net impairment losses and other provisions improved y/y by PLN 5.5 billion, or 29%, due to a decrease in the volume of impaired receivables from non-financial sector entities, mainly retail businesses and SMEs, and the release by some banks of provisions created in 2020 for the effects of the COVID-19 pandemic. The improvement in net impairment losses offset the deterioration in net other provisions (up by PLN 1.0 billion, or 17.5% year on year, to approximately PLN -6.5 billion), which was due to an increase in the legal risk of the portfolio of foreign currency housing loans as a result of a growing number of lawsuits and a change in the line of jurisprudence in favour of borrowers.

The increase in the sector’s other income to PLN 3.0 billion (vs. PLN -0.9 billion in 2020) was a result of the aforementioned base effect – high provisions for legal risk related to foreign currency loans in 2020.

The improvement in net impairment losses and other provisions as well as an increase in other revenues was followed by higher net fee and commission income by approximately PLN 2.3 bn (i.e. 15.3%) and an increase in dividend income (by PLN 0.5 bn). The increase in net fee and commission income was determined, on the one hand, by increases in fees and commissions and, on the other hand, by the inflow of funds to investment funds distributed by banks and the change in the structure of their assets to those of higher risk, i.e. more profitable from the banks’ point of view.

The sector’s result was negatively affected by a decrease in interest income by PLN 0.5 billion y/y (i.e. by 1.2%), which resulted from interest rate cuts made by the MPC in the first half of 2020 and was only partly offset by interest rate increases initiated in the fourth quarter of 2021.

The worsening interest income was accompanied by increase in costs (including depreciation and bank tax) by PLN 0.8 billion (i.e. by 2.0%). This was due to an increase in operating costs and employee costs, the impact of which was neutralised by a lower contribution to the Bank Guarantee Fund (BFG).

Source: FPSA

Main categories of the balance sheet of the banking sector

The level of loans to non-bank clients at the end of 2021 reached PLN 1,379 billion. The 5.1% y/y growth was a clear recovery from the slowdown caused by the pandemic (in 2020 the annual growth rate was 0.7%), the dynamics returned to the level from 2019 (5.0% y/y). The growth was driven by PLN housing loans and corporate loans.

Source: NBP

After falling by 5.0% last year, loans to non-financial businesses grew by 2.9% at the end of 2021. The positive dynamics were driven by a change in the trend in loans to corporates, which increased by 4.2% y/y against a decline of 4.9% y/y at the end of 2020. Similarly to the previous year, negative dynamics continued in loans for individual entrepreneurs and farmers (-1.7% y/y and -2.0% y/y respectively).

The improvement in the current epidemic and economic situation was reflected in an increase in working capital loans for both businesses (to 14.2% y/y against -15.1% at the end of 2020) and individual entrepreneurs (to 0.8% y/y against -8.0% y/y at the end of 2020). However, the economic recovery observed in the short term did not affect the investment mood of enterprises, which translated into negative dynamics of investment loans for both enterprises and individual entrepreneurs (-2.1% y/y and -4.9% y/y respectively).

Source: NBP

The volume of loans to individual customers increased by 5.8% y/y compared with an increase of 4.5% at the end of 2020. This increase was driven, on the one hand, by rapidly growing PLN housing loans (12.5% y/y vs. 10.1% y/y at the end of 2020) and, on the other hand, by positive consumer loans growth of 2.1% y/y (vs. a decline of -2.1% y/y at the end of 2020). At the same time, the volume of FX housing loans fell by -7.9% y/y (+0.2% y/y at end-2020) in an environment of PLN depreciation against CHF.

The increase in PLN housing loans occurred as a result of the continuing high demand for real estate stimulated by the low level of interest rates. At the same time, due to the continuing trend of rising property prices, the amounts of loans granted also increased.  According to the Credit Information Bureau (BIK), the average value of a home loan applied for in December 2021 was 10.8% higher y/y.

The continuation of the upward trend in consumer loans was due to, inter alia: banks loosening the criteria and conditions for granting consumer loans in connection with the improvement of the economic situation of households and increased demand resulting from the need to finance durable goods. According to BIK, high value loans (i.e. over PLN 30 thousand) accounted for the largest share in the sales of cash loans.

Source: NBP

At the end of 2021, deposits from non-bank customers increased by 10.9% y/y, compared with 13.8% at the end of 2020. This slowdown was caused by a sharp decline in the growth rate of deposits from non-financial businesses. At 10.3%, it was more than twice as low as at the end of 2020 (22.0%). This decrease was mainly due to a high base effect related to the distribution of Financial Shield funds, which occurred mainly in the second quarter of 2020.

The dynamics of deposits from individual customers amounted to 6.1% y/y and was also lower than in December 2020 (8.1%). Despite the cycle of interest rate increases initiated by the MPC, in October 2021, it did not translate into an increase in deposit interest rates due to the persistently high excess liquidity in the sector. Real interest rates on deposits remained negative due to high inflation. The decrease in dynamics was also influenced by the increase in consumer spending of individual customers and the conversion of funds to investment products with higher risk or guaranteeing at least partial hedging against the effects of inflation. This has resulted, among other things, in an increase in the popularity of so-called savings bonds. Their average monthly sales in 2021 amounted to PLN 3.6 billion, while in 2019 they exceeded only PLN 1.4 billion per month. Strong interest in higher risk investments continued, including: in the housing market, as well as in the capital market. The assets of the investment funds (excluding PPK funds) increased by PLN 6.2 billion in 2021.

No increase in interest rates on time deposits following the interest rate increases contributed to maintaining the structure of deposit growth. At the end of 2021, current deposit growth remained positive at 14.6% y/y (compared to 28.8% at the end of 2020). Retail term deposits fell y/y by 21.7%, but it was a weaker decline than at the end of 2020. (-29.3% y/y).

Source: NBP

Stock market and investment situation

In 2021 the WIG stock index, representing all companies listed on the Warsaw Stock Exchange (hereinafter: WSE), was in an upward trend, recording its highest level since 2007. In the first quarter of 2021 levels between 55,000 and 60,000 points were recorded. On the other hand, the period from April to October was a month of double-digit increases, which at the beginning of November translated into the record level of WIG near 75,000 points. At the end of the year, however, there was a correction, which brought the WIG quotations below 70,000 points.

The year 2021 brought a clear diversification of returns among the company segments, with all major indices listed on the WSE ending the year on a positive note. Between 31 December 2020 and 31 December 2021, the WIG reported a positive return of 21.5%. For the WIG20 index, which groups the largest entities on the Warsaw Stock Exchange, it was also positive but lower and amounted to 14.3%. The index of medium-sized companies mWIG40 closed with a profit of 33.1%, i.e. more than a half higher than the broad market, for which the WIG index remains the benchmark. The smaller companies segment also performed better than the broad market, with sWIG80 generating a 24.6% rate of return.

The indices of the Warsaw Stock Exchange were in line with the performance of foreign equity markets. For example, the US S&P500 index recorded a return of over 26.9% in the 12 months of 2021, the French CAC40 also gained 28.9%, while the German DAX was up 15.8%.

Index 31.12.2021 31.12.2020 31.12.2019 change
2021 vs 2020
2020 vs 2019
WIG 69,296 57,026 57,833 21.5% (1.4%)
WIG20 2,267 1,984 2,150 14.3% (7.7%)
mWIG40 5,292 3,977 3,908 33.1% 1.7%
sWIG80 20,056 16,096 12,044 24.6% 33.6%
Source: Bloomberg

The outlook for 2021 on the Warsaw Stock Exchange was influenced by the following factors, among others: (i) concerns about the impact on the global economy of the prolonged COVID-19 pandemic, which is disrupting supply chains and thus creating supply and demand imbalances; (ii) accommodative policies of central banks, with concerns about faster monetary tightening than initially expected due to accelerating inflation, which translated into capital outflows from the debt market; (iii) persistent capital turnover to value and cyclical companies vs. so-called growth companies; (iv) significant improvement in macroeconomic data, including in particular PMI leading indicators, which translated into positive revisions of economic growth; (v) volatility of zloty prices and changes in monetary policy parameters by the Monetary Policy Council.

The year 2021 brought a clear upward trend in Polish government bond yields, which, after a correction in June and July, accelerated in the following months of the year. Finally, yields on Polish 10-year treasury bonds were at 3.64% at the end of the reported year, when at the beginning of January 2021 they amounted to 1.15%. The above was in line with global trends and was a consequence of rising inflation and expectations of the economy returning to full operation. Despite the dovish rhetoric of the Monetary Policy Council since the beginning of the year, expectations of interest rate increases gradually grew in the market, which finally occurred for the first time in October. At the end of 2021, the reference rate reached 1.75%, which was the result of three consecutive increases from 0.10%.

31.12.2021 31.12.2020 31.12.2019 change 2021 vs 2020 change
2020 vs 2019
Number of companies 430 433 449 (0.7%)  (3.6%)
Capitalization of domestic companies (PLN million) 701,152 538,752 550,242 30.1% (2.1%)
Share trading volume (PLN million) 330,995 311,124 195,215 6.4% 59.4%
Futures trading volume (PLN ‘000) 11,707 11,115 6,728 5.3% 65.2%
Source: WSE

In 2021, 16 new companies were listed on the WSE’s main market, including three foreign companies and four following the transfer of listings from NewConnect, while 19 entities left the floor.

32 issuers debuted on the NewConnect organised market in the 12 months of 2021, with 25 entities delisting at the same time, including 1 foreign issuer.

A total of 547 bond series were traded on the Catalyst bond market, with the value of issues exceeding PLN 1.124 billion.

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