Strategic Evolution of the Polish Banking Market 1998-2005: Do Size and Ownership Matter?

Abstract

This paper analyses the strategic evolution of Polish banks in the period of dynamic economic growth, connected with Polish accession to the EU in 2004. For banks, this was a period of a new wave of foreign capital inflow, coming in mainly to medium-sized banks. Foreign capital had first entered large banks as part of mass privatisation via IPOs in the 1990s. In the analysed period, medium-sized banks were actively penetrated by foreign banks, and increased competition in this segment has resulted in the reshaping and differentiating of their strategies. There is a substantial body of literature on transition banking, addressing the question of the impact of foreign entry on banks' efficiency, particularly during privatisation processes. However, this paper focuses on the recent foreign entries, particularly those centred on the medium-sized banks, and analyses their impact from the point of view of the strategic results. Bank performance is assessed both on the individual bank basis and looking at three groups of banks: the large, medium and small ones. The main research question posed is whether size and ownership structure matter when it comes to the strategies and profitability of Polish banks? This paper offers a positive answer to this question, particularly when analysing a group of medium-sized banks. Foreign-owned medium banks, epitomised by US-owned AIG Bank Polska SA and GE Money, or French-owned Lucas Bank and the recently arrived Santander Consumer Bank have introduced distinctly different strategies and have turned out to be much more profitable than Polish-owned banks. However, for large banks group, where foreign capital entered a decade earlier, the strategic and profitability differences between Polish and foreign-owned banks are small. This suggests that foreign ownership does not seem to be very advantageous to large, universal and depository based banks, as opposed to smaller banks which focus on selected, loan-oriented products. In the latter case, support from the owner's technology, operations, human capital and corporate culture, seem to constitute an important competitive advantage.