Polish Guarantee Scheme

On November 30, 2008, in response to the global financial crisis, the government of Poland announced the “Stability and Development Plan,” which consisted of a series of anti-crisis initiatives totaling PLN 91.3 billion.

As envisioned in the Plan, the scheme of government support to financial institutions came into force on March 13, 2009. The scheme enabled the Ministry of Finance, on behalf of the State Treasury, to provide 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.

The Parliament of Poland passed the Act on the Provision of Support by the State Treasury to Financial Institutions on February 12, 2009 (Journal of Laws, No. 39, Item 308, as amended). The Polish president signed the bill on February 25, 2009, and the scheme came into force on March 13, 2009.

Poland notified the European Commission of the scheme on April 7, 2009. The Commission approved the scheme on September 25, 2009, and later approved 19 prolongations—the last one in December 2018. As discussed in more detail in numbers 10 and 12 below, the need to structure the guarantee scheme in such a way as to ensure EC approval significantly influenced the design of certain program features.

Program documents did not provide a specific rationale for these cap figures.

Polish authorities indicated that this eligibility standard was established “to give special treatment to banks since they conduct operations consisting mainly of acceptance of deposits and granting loans, which are considered to be activities with pivotal importance for the correct functioning of the economy” (European Commission 2009).

In 2011, Treasury guarantees became accessible to cooperative savings and credit institutions and the National Cooperative Savings and Credit Institution. Under EU law, cooperative savings and credit institutions constitute credit institutions. Polish authorities stated that these institutions provide services similar to banks and recent changes in domestic legislation had increased their significance. The greater supervision allowed them to issue bonds.

Polish authorities agreed to make sure that eligible financial institutions fulfilled adequate legal provisions such as concentration limits, value of net assets, solvency margin, and maintenance of a liquid reserve.

Program documents explicitly excluded subordinated debt.

These maturity restrictions were consistent with the guarantee maturities generally viewed as acceptable by the European Commission.

Program documents did not contain any restrictions on the currencies that were eligible under the scheme.

Program documents did not contain any limits on the amount of an individual institution’s participation in the scheme.

The terms of the fees were not addressed in the Polish Law on Support but were based on the 2008 European Central Bank recommendations (European Central Bank 2008).

For short-term debt with maturities of less than or equal to one year, the fee was an overall flat fee of 50 basis points, paid ex ante.

For medium-term debt with maturities exceeding one year, the fee was equal to an add-on fee of 50 basis points, plus the following:

1. A fee based on the bank’s CDS spreads.
2. For banks without CDS data but with a credit rating, an equivalent CDS spread would be derived from the rating category of the bank, based on a representative sample of euro-area banks.
3. For banks without CDS data and without a credit rating, an equivalent CDS spread would be derived from relevant data from the lowest rating category (but not lower than single A), based on a representative sample of euro-area banks.

In 2010, the European Commission increased the fees in view of downgrades in the credit worthiness of banks. These were increased by at least 20 basis points for banks with the rating of A-plus or single A; 30 basis points for banks rated A-minus; and 40 basis points for banks rated below A-minus. Banks without rating would be considered to belong to the category of banks with a triple-B rating.

From 2012, Poland provided a table with indicative fees (estimates) for eligible financial institutions based on the formula provided in the 2011 Prolongation Communication and using recent market data (see Appendix B).  

Collateral had to cover the full amount of the support including interest. Additional collateral would be needed if the collateral provided decreased in value or did not cover the entire amount of the liability and incidental receivables.

Guidance issued by the European Commission in October 2008 on the creation of credit guarantee programs called for the inclusion in programs of a set of safeguards “to minimize . . . distortions and the potential abuse of the preferential situations of beneficiaries brought about by a State guarantee” and “to avoid moral hazard.” This guidance did not specify exactly what safeguards a program should include, but required “an adequate combination” of elements including restrictions on advertising based on the guarantee, balance sheet growth, share buybacks and executive compensation (European Commission 2008).

Poland committed to such behavioral safeguards as a ban on advertisements or any aggressive commercial strategies referring to the State support. Polish authorities indicated that if banks utilized the guarantee, they would consider further restrictions during the guarantee period such as on dividend payments, wage increases, bonus payments, board remuneration and bank executives´ severance packages. These safeguards were designed to help ensure that participating institutions did not misuse the State support to expand their activities.

In their requests for extensions, Polish authorities maintained that prevailing market conditions would not allow for the termination of the scheme without jeopardizing Poland’s financial stability.