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Statement of the NBP Management Board of 16 March 2020

Date: 2020-03-16

The spread of the coronavirus epidemic represents an increasingly grave threat for public health and requires decisive responses. The existing situation also poses a threat to Poland’s real economy. Narodowy Bank Polski is monitoring the situation of companies which it surveys under its so-called quick monitoring and has the possibility to conduct rapid surveys. On this basis we know that, while the liquidity situation of the majority of companies has not yet deteriorated significantly, because little time has passed since the existence of the state of epidemic threat in Poland, the situation is nevertheless very dynamic and has already begun to worsen, in certain areas significantly. Enterprises are reporting very grave concerns about the growth of payment backlogs. It is also known that certain exporters are not receiving due payments from their foreign counterparties. The operations of certain companies may also be limited as a result of the compulsory quarantine of employees or also due to the need for them to stay at home, among others, in order to care for children, the disabled or elderly persons. Moreover, there is a deterioration in sentiment leading to a reduction in purchases of non-food goods and services, as well as a disruption of global supply chains and investments.

Taking into account the gravity of the situation and threat for the real economy, the NBP Management Board, on the basis of the regulations in force, has taken the decision to make use of additional instruments. We are introducing operations supplying the banks with liquidity, so-called repo operations. Access to these operations will be a type of insurance against the appearance of the need to supply banks with liquidity. Many central banks have already undertaken such measures. We carried out the first repo operation today. We will also introduce the large-scale purchase of Treasury bonds on the secondary market as part of structural operations of the open market, which will change the long-term structure of liquidity in the banking sector. These operations should also result in the maintenance of liquidity in the Treasury bond secondary market. We will introduce discount credit for banks which – like the TLTRO programme introduced by the ECB – will enable the refinancing of loans granted by banks to non-financial corporations. We are also recommending the Monetary Policy Council to significantly cut the required reserve rate and raise the interest on the reserve from 0.5% to the level of the reference rate. This will enable the creation of an additional liquidity buffer for banks and will lower their costs related to the maintenance of reserves.

The NBP Management Board is introducing or recommending the above-mentioned measures in order to support the right responses on the part of fiscal and supervision policy as well as on the part of the banking sector. Above all, urgent measures are necessary to reduce the burden on enterprises, which should limit losses and reduce the risk of bankruptcies. Detailed solutions fall within the competences of the government. They could include such measures as the temporary introduction of cash accounting methods for all companies and the suspension of tax payments as well as social security (ZUS) and Employee Equity Plan (PPK) contributions and splitting them into interest-free instalments to be paid following a grace period, at the enterprise’s reasoned request. Companies that find themselves in a difficult situation would not pay taxes anyway, and without such a solution they will face bankruptcy. In justified cases, a rather radical but effective solution would be the possibility to reduce wages (no lower than the minimum wage) for a defined period, with the obligation to recompensate at a later date. This type of solution is certainly more favourable than bankruptcy and unemployment. It should also be considered to allow ZUS to compensate enterprises for the costs of absence due to the coronavirus epidemic already from the first day.

The Polish Financial Supervision Authority should closely monitor the character and scope of the impact of the epidemic on the ability of banks to provide financial services and periodically report important findings in this scope to the Financial Stability Committee. The Polish Financial Supervision Authority should also agree to the use of liquidity surpluses in relation to the minimum required LCR in order to ensure temporary liquidity to non-financial corporations – without prejudice to their prudential assessment. Finally, a flexible approach to the implementation by banks of the MREL requirement would be desirable, which would allow banks to fully use the period provided for in BRRD II, i.e. until 2024.

The implementation of a grace period for the repayment of loans that has been announced by the banks should also be assessed positively. Banks could also be supported by reducing or suspending the banking tax, in particular, in the scope of corporate exposure. The NBP Management Board also supports a reduction in the systemic risk buffer in order to maintain the supply of credit by banks. A reduction in the rate from 3% to 0% would free up approximately PLN 30 billion of capital.

Last Friday, the President of NBP announced that he will propose to the Monetary Policy Council a reduction in NBP interest rates. The NBP Management Board supports such a decision. This would lower the current interest margins of banks; however, in the long run it will positively influence the financial situation of banks due to its favourable impact on the quality of the loan portfolio. The banking sector in Poland is functioning stably, is profitable and has large liquidity and capital buffers. Unlike the global financial crisis, the current situation is not connected with the banking sector, and currently the main challenge is related to the need to maintain the liquidity of non-financial enterprises. This is why it is necessary to focus at the moment firstly on the situation of the non-financial enterprise sector so that the temporary fall in demand and production does not lead to a permanent reduction in employment and bankruptcies. Many firms are borrowers and a reduction in interest rates will improve their financial situation, the same as in the case of households repaying loans, in particular housing loans. An interest rate cut is an immediate and direct way to reduce the costs of credit obligations. Therefore, this is relief for the majority of borrowers, including for the public finance sector. Changes in interest rates will not prevent supply-side disruptions, nor will they make demand in the economy grow in the short term, but they will reduce the burden resulting from existing obligations, which will provide support for the budgets of firms and households and also reduce the costs of the necessary fiscal measures.

The measures implemented and recommended by NBP are reversible – this is important should the situation rapidly improve, which we are all counting on. Decisive and pre-emptive action is currently necessary to prevent the temporary economic disruptions from becoming permanent, and is necessary for the maintenance of the long-term potential of the Polish economy.

The NBP Management Board would also like to inform that, despite the increased withdrawals of customers, the supply of money to banks is running smoothly in the whole of the country. We would like to thank all professional cash cycle participants for their commitment to ensure that society has uninterrupted access to cash. The value of banknotes in NBP’s supplies enables the full realisation of the banks’ orders. As a standard, NBP conducts the daily monitoring of the withdrawal and lodgement of Polish currency by banks.

NBP interest rates

Reference rate 6.75
Lombard rate 7.25
Deposit rate 6.25
Rediscount rate 6.80
Discount rate 6.85

Exchange rates

Table of 2023-02-03
1 EUR4.6920
1 USD4.2928
1 CHF4.7023
1 GBP5.2571
100 JPY3.3391

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Narodowy Bank Polski
Świętokrzyska 11/21
00-919 Warszawa

+48 22 185 10 00
NIP: 525-000-81-98
REGON: 000002223
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