Lessons for CESEE Countries
Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Peter Backé
Chapter 5: Capital flows as a source of funding in a catching-up economy: lessons from the crisis, challenges for the future
In the pre-crisis period Poland experienced an acceleration in mortgage lending (including foreign currency (FX)-denominated mortgages, see Figure 5.1), comparable in magnitude to the euro area periphery. However, the credit boom was only partly fuelled by foreign capital inflows. A number of major banks were able to finance a significant share of FX mortgage lending from the domestic (local currency) deposit base, as FX mortgage loans were actually disbursed in Polish zloty. The significant part of the FX loan portfolio therefore needed only FX hedging, which was usually provided by non-residents (mostly parent companies). Luckily for Poland the FX lending boom was postponed by Recommendation S (which is discussed below) and the global financial crisis came soon enough to prevent the banking sector from using (and misusing) global wholesale markets funding on a massive scale (see Figure 5.2). Nevertheless, the short period of the mortgage lending boom (2006– 2008) left the banking sector with the loan portfolio excessively skewed towards mortgages, whereas the share of corporate loans is quite low by international standards (see Figure 5.3). However, due to the relatively small size of the banking sector in Poland, the relative size of the mortgage loan portfolio (as a percentage of gross domestic product, GDP) did not reach worrying levels.
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