Polish Guarantee Scheme

The 2007-2009 global financial crisis (GFC) restricted liquidity to financial institutions around the world as confidence in counterparties weakened. Poland was the only European Union (EU) member state not to face recession in 2009 (IMF 2010). However, given Poland’s links within the EU, along with the fact that the majority of the banks in Poland are subsidiaries of EU entities, the Polish financial sector remained exposed to financial risks.

On November 30, 2008, to strengthen Poland’s economy in view of a potential global credit crunch, the government of Poland announced the “Stability and Development Plan” (Plan Stabilności i Rozwoju) consisting of a series of anti-crisis initiatives totaling PLN 91.3 billion ($32.2 billion)^FNThe November 2008 monthly average exchange rate was $1 = PLN 2.92 (National Bank of Poland 2009). Some of the initiatives included:

1. Stimulating both consumption and investment by providing tax cuts and speeding up investments co-financed with EU funds.
2. Maintaining liquidity of financial institutions by facilitating Treasury guarantees on newly issued bank debt and the exchange of Treasury bonds for less liquid assets.
3. Ensuring sustainability in public finances by limiting the size of the budget deficit.
4. Strengthening small- and medium-size enterprises by facilitating loans.
5. Alleviating distress of the unemployed by providing assistance on mortgage payments.

In addition to the Plan, the Polish government:

1. Established the Financial Stability Committee, composed of the Ministry of Finance, the National Bank of Poland, and the Polish Financial Supervision Authority.
2. Increased deposit insurance from € 22,500 to € 50,000.
3. Adopted an “Anti-Crisis Package” negotiated with labor unions and employers aimed at preserving employment. The package contained measures such as wage subsidies, flexible working hours, the elimination of certain taxes, and increases in the minimum wage.

As envisioned in the Plan, on February 12, 2009, the Parliament of Poland passed an act “on provision of support by the State Treasury to financial institutions,” which aimed to reinforce the stability of Polish financial markets.^FNJournal of Laws, No. 39, item 308. The Polish president signed the bill on February 25, 2009, and the support scheme (or Law on Support) came into force on March 13, 2009. The European Commission (EC) approved it on September 25, 2009, as consistent with EU State Aid rules.^FNThe scheme contained EU State Aid elements compatible with the EU common market as “necessary to remedy a serious disturbance in the Polish economy” within the meaning of Articles 107(1) and 107(3)(b) of the Treaty of Functioning of the European Union (TFEU) .

The scheme enabled the Ministry of Finance, on behalf of the State Treasury, to facilitate the short- and medium-term financing needs of solvent institutions by providing support in the following forms:

1. A 50% Treasury guarantee on the repayment of refinancing loans provided to banks by the National Bank of Poland.
2. A Treasury guarantee on loans and credit lines provided to banks by credit institutions for purposes of maintaining liquidity ratios.
3. A Treasury guarantee on debt securities issued by eligible credit institutions.
4. The sale of Treasury bonds to institutions for delayed payment or payment in installments.
5. The lending of Treasury bonds to institutions.

This case focuses exclusively on the Treasury guarantee of debt securities.

Under the terms of the scheme, the Ministry of Finance, on behalf of the State Treasury, would guarantee the institutions’ new issuance of debt in exchange for a fee and collateral. The guarantees included only commercial bank senior debt and explicitly excluded subordinated debt. There were no currency restrictions (European Commission 2009). The issuance window was restricted by the European Commission to a period of six months. In order to extend the issuance window, the Polish government was required to submit prolongation plans to the EC for approval (European Commission 2009).

Treasury guarantees covered debt with maturities ranging from three months to three years. Only in special cases could maturities of up to five years be guaranteed. Debt guaranteed by the State Treasury with maturities exceeding three years was restricted to a maximum of one-third of the value of all guaranteed debt of the particular beneficiary (European Commission 2009).

The overall cap for the scheme in State Treasury guarantees was initially set to PLN 40 billion^FNAccording to the State budget adopted for 2009, the limit of all State Treasury guarantees (including outside of the scheme) was PLN 40 billion. and increased to PLN 160 billion in 2012^FNThe Polish budgetary law for 2012 increased the total limit for State Treasury guarantees to PLN 200 billion. This gave justification for an increase in the budget available under the scheme. (European Commission 2012a). There were no individual caps on a given bank’s participation.

Participation in the scheme was voluntary and guarantees were available only to institutions that met Polish capital and solvency requirements. Initially, only domestic banks, including subsidiaries of foreign financial institutions, could apply for guarantees. In 2011, eligibility was extended to include cooperative savings and credit institutions and the National Cooperative Savings and Credit Institution (NCSCI) (European Commission 2011).

The terms of the guarantee fees were not addressed in the Law on Support. The initial fees were based on the 2008 European Central Bank Recommendations (European Central Bank 2008) and tied to banks’ credit default swap (CDS) spreads.

In 2010, the fees were increased. The European Commission stated that downgrades in banks’ credit statuses since 2008 were not taken into account in the existing fee structure. Therefore, the EC ordered that fees be brought closer to market conditions reflecting individual banks’ creditworthiness. This required the fees to be increased by at least 20 basis points (bps) for banks with the rating of A-plus or A; 30 bps for banks rated A-minus; and 40 bps for banks rated below A-minus. Banks without rating would be considered to belong to the category of banks with a triple-B rating (European Commission 2010 and 2010a).

From 2012, the government of Poland provided a table with estimated indicative fees for eligible financial institutions based on a formula provided in the 2011 Prolongation Communication and using recent market data. (European Commission 2012 and Appendix A).

For institutions that defaulted on their liabilities or had their guarantees called, Polish authorities committed to file individual restructuring or liquidation plans within a period of six months (European Commission 2009).

Poland also committed to behavioral safeguards such as a ban on advertisements or any aggressive commercial strategies referring to the State support. Polish authorities indicated that they would consider further restrictions during the guarantee period such as on dividend payments, bank executives’ severance packages, bonus payments, wage increases, and board remuneration (European Commission 2009). 

Originally, the issuance window of the scheme was set to expire on December 31, 2009. The European Commission approved 19 prolongations of the scheme for six months each, with the last one in December 2018 (see Appendix B). No institution applied for coverage under the scheme and the issuance window expired on May 31, 2019 (European Commission 2018 and 2018a).