OREANDA-NEWS. Additional capital buffers introduced by the Polish banking regulator (KNF) on 23 October 2015 are credit positive for banks' standalone Viability Ratings because they strengthen loss absorption capacity, says Fitch Ratings. However, additional capital requirements may result in capital-raising challenges and lower credit growth at some banks.

Slower lending growth is now likely because these new capital requirements will limit free capital when Polish banks are already facing profitability pressures. The banks will make sizeable contributions to a special fund to support weaker borrowers and to the deposit insurance fund and, from 2016, the sector is likely to face some form of new bank tax. Another problem, which the sector needs to address, is to what extent banks will have to share in any of the borrower relief proposals associated with retail mortgage loans extended in Swiss francs. These represent around 15% of total loans in the sector. A solution may well force losses onto the banks.

KNF said that 14 banks with Swiss-franc mortgage books will need to set aside an additional buffer totalling PLN10bn (USD2.6bn). This should be easily achievable in most cases because the banks already hold PLN9bn of capital in excess of the regulatory minimum.

The banks that we rate more highly are generally in a better position to meet the new capital requirements. Bank Zachodni (BBB/Stable), mBank (BBB-/Postive) and Eurobank (A-/Stable) would already appear to comply, based on their end-3Q15 accounts. Bank Millennium (BBB-/Stable) complies with the Tier 1 requirement but it might need some additional Tier 2 capital to comply with the total capital requirement.

Capital adequacy at Getin Noble Bank (BB/Stable/bb) and Bank Ochrony Srodowiska (BOS, BB/Negative/bb) is under pressure and both banks will have to take significant corrective measures if targeted capital ratios are to be met. BOS plans to raise around PLN300m of fresh equity in 1H16, sufficient to meet higher capital requirements that we estimate at PLN200m. But capital will remain tight and this is likely to constrain growth. Getin plans to cover its estimated PLN1.3bn additional capital requirement by reducing risk weighted assets (RWA) and raising new equity or subordinated debt of around PLN300m).

KNF's two new capital requirements are in addition to the existing 9% Tier 1 and 12% total capital ratios in force. The capital conservation buffer, comprised entirely of Tier 1 capital, of 1.25% of RWAs applies to all banks from January 2016. A second buffer, 75% of which must comprise Tier 1 capital, comes into force immediately and applies to 14 banks. This ranges from below 1% to 4.39% of RWAs, depending on the amount of Swiss franc-denominated retail mortgages written by each bank. Banks have until June 2016 to comply.