Credit Unions in Poland: Diagnostic and Proposals on

Regulation and Supervision

Marcin PiątkowskiSenior Economist

Warsaw, February 11, 2011

Objective of the Report

To provide information on the Polish Credit Union experience

To analyze the new regulatory and supervisory framework created by the amendment to the Credit Union Law, which shifts credit union supervision from the National Association of SKOKs to the Polish Financial Services Authority

To provide detailed recommendations for the implementation of the new supervision model.

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3

Main messages

The current system of self-supervision seems no longer adequate

The amendment to the Law on Credit Unions shifting supervision to the PFSA is a step in the right direction as it will enhance the stability of the system and support its sound growth

The new Law, however, has to be supported by more detailed regulations and robust implementation to ensure efficiency of the new supervision model

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The current system of supervision no longer adequate

This is because of:

the large size of the SKOK system

inherent conflict of interests between the apex supervisory credit union and member credit unions

the rising systemic importance of SKOKs for the whole banking sector

The fact that the global financial crisis has not stopped SKOKs from growing assets at the cost of lower capital and lower financial stability

The SKOK system experienced remarkable growth in the past

5Source: Polish Statistical Office

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

1H20

100

500

1000

1500

2000

2500

Growth of SKOKs

No. of SKOK branches No. of SKOK members (000's)

But at a price of a weaker capital position

6Source: Polish Statistical Office

2007 2008 2009 1H20100.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0

2

4

6

8

10

12

14

3.8%

3.2%

2.6%

3.2%

Assets and capital

Assets Capital Capital/assets (LRS)

in b

illi

on

PL

N

7

And rising delinquent loans

2008 2008 1Q20100%

2%

4%

6%

8%

10%

12%

14%

Deliquent loans/total loans

Source: NASCU

The new Law is a step in a good direction, but needs to be supported by detailed regulations

Clearly defining the roles of the National Association of SKOKs and the PFSA in terms of regulation and supervision, including tasks assigned and specific responsibilities in the Law and relevant secondary regulation

Supporting the new Law by a detailed, inclusive set of regulations to establish prudential and non-prudential standards

Enabling access for SKOKs to the state guaranteed deposit insurance system

And...

Establishing minimum capital adequacy ratios for SKOKs, which at 3% today are considerably below 8% international standards

Requiring SKOKs to use the chart of accounts, accounting principles and reporting formats applicable to other financial institutions

Establishing an internal audit function for SKOKs

Strengthening SKOKs’ governance structure 

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Important to ensure efficient implementation

The PFSA may consider focusing on the supervision of larger SKOKs and delegating some activities of the supervision of smaller SKOKs to the National Association of SKOKs

The PFSA can control the quality of the delegated examinations through their regulation and close supervision of NASCU

The PFSA may want to engage with key stakeholders as it begins regulation of SKOKs to gain the sector’s support to implement the changes

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THANK YOU!

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