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The Warsaw Voice » Business » September 30, 2009
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Coping with the Crisis
September 30, 2009 By Michal Jeziorski   
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Unlike a recession, which is a natural occurrence in the economic cycle, a crisis is something that exists mainly in the mind. If people believe there is a crisis and everything's collapsing around them, they will behave as if that crisis were a fact. The result is a rapid fall in consumption. Luckily, Poles haven't succumbed to crisis psychology. Poland is expected to be the only country in the whole of Europe that will report economic growth this year.

Pessimists say such a GDP result is the effect of underdevelopment. But if that were the case Romania, with its much lower level of development, should report even higher growth. Instead, it has seen annual GDP fall 8.8 percent. The truth is that Polish consumers have limited spending to a relatively small extent. Manufacturers, too, have made only moderate downward corrections compared with their earlier growth rate. It's worth noting that the government hasn't panicked either and hasn't made any hasty decisions.

Good results for banks
Banks are doing pretty well. In the second quarter, the commission earned by 12 Polish banks in the WIG-Banki stock exchange index totaled zl.2.58 billion. That's 8.4 percent more than in the first three months of the year and 3.1 percent more than the result from a year ago. This translates into zl.200 million more income on commission compared with the first quarter and over zl.76 million more than in the same period of 2008.

Savings accounts are growing in popularity. Deposits in such accounts have grown by 30 percent over the past year. It would be hard to find a bank that doesn't offer savings accounts. The Poles have about zl.65 billion in these accounts- that's one in every four zlotys of Poles' overall savings.

This figure is growing not only because banks have expanded their offered range. It's also because savings accounts carry attractive interest rates. The best of them can bring up to 6 percent in annual interest. Another thing that attracts customers to savings accounts is relatively easy access to the money kept in the account. The general rule is that you can take out money once a month at no extra cost and, most importantly, without losing the interest. Customers can also deposit even very small sums at any time, unlike deposit accounts, which require a set minimum.

Savings accounts are also an attractive product from the banks' point of view. Limiting turnover by charging an extra fee for withdrawing money more than once a month means that these accounts continually hold a certain amount. Furthermore, unlike with money taken out of deposit accounts, the bank makes additional income on the fees for extra withdrawals.

Overnight deposits are another hit product of recent months. The cause of their popularity lies in the fact that they allow customers to avoid paying the 19-percent tax on capital revenue. In this case, banks take advantage of a loophole in the tax law. The law says that the tax should be rounded off to the nearest zloty-up or down. If the due tax is zl.0.50, it is rounded up to zl.1. If the due tax is zl.0.49, it is rounded down to zl.0. Under the law, the due tax then equals zero and there's nothing to pay. The tax on capital revenue is 19 percent, so if such revenue is no more than about zl.2.50, the calculated tax will be zl.0.48. Customers and banks are happy, while the state coffers get nothing.

Subsidized loans
The "Rodzina na Swoim" (Family In Its Own Home) government program of mortgage subsidies is setting records in popularity. In the first six months of the year, 12,500 loans totaling over zl.2.1 billion were granted under this system. In July, a record month so far, 3,400 bank customers took advantage of the government subsidies, and loans of over zl.605 million were issued.

This state assistance consists of repayment of half the interest during the first eight years of loan repayment. The target group for the program are single parents, young married couples (not necessarily raising children), people without a home in any legal form, and people who don't rent a home from a cooperative.

Today 12 banks are already taking part in the program, but the range of home loans on offer is varied. The margin can be anything between 1.35 to 6.74 percent- and the margin is fixed throughout the loan period. Thanks to the program, the prices of apartments have gone down. On the other hand, demand has grown slightly, which is good news for developers as well. To sell a home in the program, developers have to adjust their prices to the program's thresholds. For a bank customer to receive a mortgage subsidy in Warsaw, the price per square meter of apartment cannot exceed zl.7,257.

The beginnings of the program go back to 2007, but at that time its popularity was negligible due to the stringent requirements. Prices per sq m were far above the maximum allowed for people to be able to take advantage of the program, while banks mainly sold loans in Swiss francs and weren't at all interested in providing subsidized loans. Today, when there is a shortage of Swiss francs on the interbank market, the program has become an unexpected hit on the mortgage market.

Debt grows
Cassandric warnings of a growing number of people defaulting on their debts en masse have not come true. The risk is still there, though, and the Poles' debts are rising. The latest report by InfoDług published by the Economic Information Bureau (BIG) states that the sum of all overdue liabilities is zl.12.05 billion. In the last quarter alone, this amount grew by over 20 percent. The data shows that 1.47 million people in Poland are having problems with repaying their debts. Over the past year, the amount of overdue debts has grown by 71 percent.

Men have problems repaying their debts on time much more often than women. The greatest amount of overdue debt is in Silesia and Mazovia provinces. The average debt in August 2009 was more than zl.8,000. Luckily, most people who are behind on their repayments are "small debtors" with less than zl.2,000 to repay. The average is increased by people with enormous debts. The record holder here is a resident of Mazovia province who owes zl.77 million. He took out loans for stock market investments and lost most of the money. If he earned the national average wage, he would have to work for over 30,000 years just to pay back the debt. It's worth noting that the overall amount of overdue debt is growing much faster than the number of people with loan repayment problems. This means that it's mainly the arrears of people who have previously had repayment problems that are growing.

Ticking bomb
Meanwhile, there's a bomb at banks that is ticking more and more loudly. It's called credit cards. Selling these in recent times, banks focused mostly on sales plans, and "sell and forget" behaviors were not uncommon. As a result, the number of issued cards grew to almost 10 million within a short time. For comparison, in 2000 there were barely several hundred thousand credit cards in Poland. This is a worrying trend in view of the fact that the standard interest on a credit card is the highest on the market, reaching about 20 percent. That's close to the maximum legal interest rate allowed under the anti-usury law- 23 percent. The favorite rhetoric of credit card commercials is that the cards are free. Usually the customer doesn't pay for the card, though it normally costs about zl.20.

Going over the limit is penalized with an extra fee, usually zl.20-zl.50, but that's the minimum, as the fee can even reach 10 percent of the overdraft, which can be a lot of money if a big shopping spree is involved. Neither is it worth being late with repaying the minimum amount. It takes just one day's delay for banks to charge fees for sending out reminders over the phone or by post, or to charge higher interest.

Tried and tested
The bad situation on the labor market is encouraging some ambitious people to set up their own business. The safest option is to invest in a business under license-hence the growing popularity of franchising. At the start of the year, there were 480 franchise offers on the market (an annual growth of over 25 percent).

Franchising reduces the risk of failure, as the business is based on a well-tried idea, has a recognizable trademark familiar to customers and is subject to certain rules under the franchising contract.

In Poland franchising is developing chiefly in the retail trade, followed by services. Almost 1,500 new franchise stores selling food and manufactured goods were set up in 2008, and 430 stores selling household appliances and telecommunications equipment. Over 1,600 new franchise businesses appeared in the service sector including in catering, hairdressing and beauty care.

Similarly to previous years, supermarkets and gas stations are the most capital-intensive, with outlays that can reach in excess of zl.5 million. However, about 28 percent of franchises require investment of no more than zl.50,000. Franchising in Poland is a business for almost every pocket.
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