Poland: Changes In The Banking Law For Converting A Credit Institution Branch Into A Joint Stock Company

On 14 July 2011 an amendment to the Polish Banking Law entered into force under foreign branches of credit institutions may be converted into domestic banks as a joint-stock company.

New regulations

According to new Banking Law regulations, a credit institution operating in Poland through its branch may create a bank as a joint-stock company by making a contribution in kind of all assets of the branch, if they constitute an enterprise or its organised part. But shares of the converted branch may be subscribed for only by a credit institution. Conversion requires filing an application to the Financial Supervision Authority (FSA) for a permit. The permit expires if no entry to the register of entrepreneurs is made within one year of permit delivery; the FSA may set a shorter period of at least six months for bank registration.

Upon registration, the bank starts its operation and the credit institution branch is struck off the register of entrepreneurs ex officio. At that time the bank assumes all rights and obligations of the credit institution covered by branch activity. In particular, permits, licences and reliefs pass on to the bank, unless separate provisions or decisions on permits, licences or reliefs provide otherwise or unless, prior to issuing the permit, an objection was raised by a body that granted a permit or licence.

The bank formed by way of credit institution branch conversion must maintain a solvency ratio of at least 12% for the first 18 months of operation.

Purpose of amendments

The changes bring a risk that credit institution branches operating in Poland will have a significant share in the Polish market or will operate on a relatively huge scale measured by assets or deposit or credit portfolios.The risk posed by such branches threatens both credit institutions and the Polish financial market. It may prove difficult to ensure effective supervision over the activities of a credit institution branch adequate to the scale of such activity, especially during times of fluctuation in financial markets. The form of a credit institution branch hinders effective supervision. Supervision over the activity of credit institutions in Poland is exercised by the relevant home state supervisory authorities. The FSA has only a right to supervise a branch's payment liquidity and may apply supervisory measures only if the branch breaches Polish law.

Consequences of the bill

The main consequences of the bill are that, from a credit institution branch converting into a domestic bank as a joint-stock company, a new domestic bank emerges, the branch is closed and all rights and obligations of the credit institution covered by the branch activity are transferred. Additionally, the FSA assumes supervisory powers over the branch converted into a bank. Another important consequence is the takeover of deposits collected within branch activity by the deposit guarantee system (Bank Guarantee Fund).

Conclusion

The amendments are welcome. They will bring financial stability to the domestic market and enhanced security to Polish depositors. From a legal perspective, Polish laws will become complementary to EU laws. The bill supplements binding regulations from EU law under which domestic banks may be converted into credit institution branches by way of cross-border merger. As a result a credit institution, through universal succession, assumes all rights and obligations of the domestic bank connected with bank activity.

This means that if a bank runs a banking enterprise in Poland, and the taking over of a credit institution is intended to continue such activity, the branch will be created based on that enterprise. The new regulation enables a reverse process, ie, a domestic bank formed on the basis of a credit institution branch through universal succession by which the domestic bank assumes all rights and obligations of the credit institution connected with the branch's activities in Poland.

The changes may also serve as an alternative for the credit institution itself, since branch conversion into a domestic bank enables expansion of activity in Poland by (i) building trust in the local market and customers and (ii) by gaining additional means for development by capitalising the bank (subscription for a new issue of shares) by a strategic partner. If the bank's shares are sold after its creation, the branch conversion into the domestic bank may be treated as a way for a credit institution to withdraw from the Polish market.

This article was originally published in the schoenherr roadmap`11 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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