Credit Unions in Poland: Diagnostic and Proposals on Regulation and Supervision

1. Credit Unions in Poland: Diagnostic and Proposals on Regulation and Supervision Marcin Piątkowski Senior Economist Warsaw, February 11, 2011

2. 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.

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

4. 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

5. The SKOK system experienced remarkable growth in the past Source: Polish Statistical Office

6. But at a price of a weaker capital position Source: Polish Statistical Office

7. And rising delinquent loans Source: NASCU

8. 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 andthe 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

9. 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 

10. 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

11. THANK YOU!