Banking reserves for general risks are created by the bank’s management board in relation to the recommendations of auditors and assessment of the situation in the financial sector and due to the socio-political situation (Article 130 of the Banking Law.
Increasing reserves by banks always result in an economic slowdown and greater caution of the financial sector in investing and granting loans, as the profit rate decreases. 2019 was a good year for the ten largest banks, i.e. in line with profit forecasts. The ten largest banks from the WSE generated a net profit of USD 3.76 billion in the third quarter, which means that for a year by 8.2 percent and quarterly by 2.4 percent.
Reasons for creating reserves by banks
September 2019 was very important for the banking sector and consumers of banking products. The Court of Justice of the European Union (CJEU) issued a decision requiring a bank to pay back a commission. Of course, this reimbursement must be proportional to the reduced costs of granting the loan. The cost of the loan includes commission, insurance and preparation fee.
A moment later, a ruling appeared in the case. Although it is not yet legally binding and both sides interpret them in their favor, it is true that franchisees have crossed a certain caesura, from now on the way to compensation and refunds for franc loans will certainly be easier, although not necessarily faster. On December 30, the Gdańsk Regional Court decided to refer questions to the CJEU for a preliminary ruling. According to experts, this will delay the case-law by several months to even a year and a half.
Which banks are already increasing reserves?
Recent case law of the CJEU on commission refunds and franchise holders has forced some banks to create legal reserves in connection with these events. These activities are dictated by the future and potential consequences of litigation with borrowers.
However, it must be emphasized that not every bank has the same situation. Only some of them, most at risk of lawsuits, have already taken the first steps in creating reserves. It should be noted here that the Polish Financial Supervision Authority recommended that the system for creating reserves should be adopted uniformly. At the moment, however, it is hard to imagine.
Banks’ boards decide on the amount of reserves, auditors will only assess post factum. In conclusion, it should be noted that the current activities of banks indicate a certain trend. These institutions are very reserved in assessing the situation and take into account the consequences of their previous activities in the field of hasty lending, hence increasing reserves.
It seems that the ruling of the CJEU regarding frank-holders and the decision (the so-called small TSUe) on commission returns led to a certain breakthrough and changes in the rules of the game on the bak-borrower line.