Poland’s lenders under pressure as margins shrink and costs climb

This article is a part of Poland Unpacked. Weekly intelligence for decision-makers

A 30% corporate income tax, higher contributions to the Bank Guarantee Fund (BFG), and shrinking interest margins took a heavy toll on banks’ first-quarter results. We examine which institutions weathered the storm and which posted declines of as much as 50%.

Barely a month has passed since the last bank published its financial statements for 2025, and already we can assess the sector’s performance for the next three months. On May 14th, PKO Bank Polski and Bank Ochrony Środowiska (BOŚ) became the final institutions to release their figures. We now have a complete set of data for all ten banks listed on the Warsaw Stock Exchange. At XYZ, we therefore examine the trends shaping the sector and identify the winners and losers across individual business segments.

Net profit: most banks reported lower earnings, with BNP Paribas and Erste among the weakest performers

Unlike in previous quarters, most banks this time reported weaker results than a year earlier. Six of the ten institutions analyzed posted negative year-on-year growth, while combined consolidated net profit came in at PLN 8.04bn (EUR 1.88bn). That was 14.9% lower than a year ago. Why? For the first time, banks paid the higher 30% corporate income tax (CIT). In addition, they made larger contributions to the resolution fund managed by the Bank Guarantee Fund (BFG), the full cost of which is booked in the first quarter of the year. The situation has been further aggravated by falling net interest margins – the ratio of interest income to interest-earning assets – which had driven the sector’s profitability in 2023–25.

Let us begin, however, with the banks that outperformed last year’s results. Bank Millennium posted an impressive 68% improvement over the period under review. The main reason was the gradual winding down of the Swiss franc mortgage problem, reflected above all in the level of provisions set aside for such loans. The bank recorded a 55% decline in these provisions. mBank performed even better in this respect, with provisions shrinking by as much as 89%. However, the institution felt the rise in BFG contributions more acutely than Bank Millennium. As a result, mBank’s net profit still rose 35% year on year.

At the other end of the spectrum stood BNP Paribas Bank Polska. Its profit nearly halved. The bank was one of only two institutions in the group to report declines in both interest income and fee-and-commission income during the period under review (the other being Citi Handlowy). What is more, it posted significantly higher provisions for credit risk, although in absolute terms they remained lower than those of its main rivals. Erste Bank Polska also recorded a steep decline of 40.7%. This was driven in part by a sharp increase in operating costs related to the bank’s rebranding in Poland and its integration with its new owner.

Interest income: banks are increasingly feeling the impact of lower rates, and only one managed to improve its result

As recently as 2025, interest income rose by 3.4%, helping banks deliver record-high annual profits. In the first three months of 2026, however, the figure was already 3% lower than a year earlier, at PLN 21.87bn (EUR 5.11bn). Banks are beginning to feel the adverse effects of last year’s interest-rate cuts by the National Bank of Poland (NBP). This is most visible in net interest margins, which declined across all ten banks analyzed.

Only one institution managed to increase its interest income: ING Bank Śląski. Its margin fell by just 0.16 percentage points during the period under review – the smallest decline among the banks surveyed. The lender highlighted a drop in funding costs to 1.65%, helped in part by the opening of 170,000 new current accounts, with balances in those accounts rising by as much as 13% over the year. During the same period, funds held in savings accounts increased by 10%, while growth in deposits and structured products was only half as strong.

At the bottom of the ranking was Citi Handlowy, whose net interest income shrank by 17% overall and by 14% when considering only its institutional business – that is, continuing operations. This was largely due to lower interest income from its bond holdings, after the bank sold part of its debt-securities portfolio. In mid-June, the retail arm of the bank is due to be formally acquired and integrated with VeloBank. As a result, the bank’s interest-income figures are expected to contract even further in the coming quarters.

Fees and commissions: the sector benefits from higher brokerage income, with mBank and BOŚ leading the way

Fees and commissions remain banks’ second most important source of income. In the first quarter, this line grew by as much as 8% year on year, marking an acceleration from 2025 (+3.4%). Combined fee-and-commission income for the ten banks analyzed reached PLN 5.08bn (EUR 1.19bn), equivalent to 23.2% of net interest income. That represents a sizeable disparity – and one that is steadily widening. By comparison, for the same group of banks in 2025, the ratio stood at 21.7%.

As many as five banks posted double-digit year-on-year growth in fee-and-commission income. mBank and Bank Ochrony Środowiska (BOŚ) delivered the strongest performances, each increasing income in this category by 15%.

mBank benefited from a simultaneous rise in commission income and a reduction in costs. Percentage-wise, the sharpest increases came from brokerage operations and insurance sales. In absolute terms, however, the strongest growth was recorded in income linked to lending and foreign-exchange transactions.

BOŚ attributed its growth to a faster increase in brokerage-related commissions. The bank noted that its clients opened 4,810 investment accounts in the first three months of the year, including 3,260 brokerage accounts.

Only two banks reported lower fee-and-commission income than a year earlier: BNP Paribas Bank Polska and Citi Handlowy. In the former, income fell by 3.9%, mainly owing to lower commissions related to payment-card services. At Citi, meanwhile, the result declined by 3%, both for continuing operations alone and for the bank as a whole, including the retail arm that will formally change ownership in June.

Interestingly, the bank’s commission income is still edging higher, but costs are rising even faster. Expenses related to brokerage fees surged by 83%, those linked to brokerage operations by 40%, and costs associated with payment cards by 17%.

Costs: banks felt the squeeze from rising expenses

The first three months of the year brought a sharp increase in costs. Expenses related to banks’ operating activities – including staff costs, regulatory charges, depreciation and various other expenditures – reached PLN 11.37bn (EUR 2.66bn). That was 10% higher than a year earlier. One contributing factor was the previously mentioned increase in contributions to the BFG’s resolution fund. But there were other reasons as well.

Operating costs rose across all ten banks analyzed. The sharpest increase – 23% year on year – was recorded by Erste Bank Polska, formerly Santander Bank Polska. The bank incurred PLN 67m (EUR 15.7m) in rebranding expenses and a further PLN 23m (EUR 5.4m) in integration costs. Even excluding those items, however, the bank’s costs would still have risen by 16.6%, the fastest increase among the major banks listed on the Warsaw Stock Exchange. Aside from higher BFG contributions, the increase was driven by higher marketing and advisory-service costs, as well as rising wages following a compensation review and larger employee bonuses.

Alior Bank proved the most effective at keeping costs under control, recording an increase of just 2%, or 1% excluding the BFG contribution. The main component was wages, which rose by only 1% during the period under review. This was largely the result of layoffs at the bank. Over the same period, the Alior Bank group reduced headcount by 5%, equivalent to 379 full-time positions.

Credit risk: rising at most banks, even as the NPL ratio declines

Another factor weighing on the sector’s performance is provisions for credit risk, set aside to cover losses from non-performing loans (NPLs). Whereas provisions had been declining last year – supporting the sector’s profitability – the beginning of 2026 brought a deterioration in the trend. In the first three months of the year, the banks analyzed booked PLN 1.2bn (EUR 281m) in provisions, 9% more than a year earlier. Six out of the ten institutions posted positive growth in this category – and in this case, rising figures are generally bad news rather than good.

Excluding Citi Handlowy – which released provisions a year ago, distorting comparability – BNP Paribas Bank Polska delivered the weakest first-quarter performance. The bank created provisions that were 130% higher than a year earlier. In doing so, it was safeguarding itself against potential threats: PLN 26m (EUR 6.1m) was allocated to clients from the transport sector, while PLN 21m (EUR 4.9m) was earmarked for clients exposed to the consequences of the war in the Middle East.

As usual, the sector’s largest provisions were booked by PKO Bank Polski. Interestingly, it was followed not by the next-largest lenders by loan-book size – Bank Pekao and Erste Bank Polska – but by ING Bank Śląski.

At the opposite end of the ranking were Bank Ochrony Środowiska (BOŚ) and mBank, which reduced credit-risk provisions by 39% and 36% respectively compared with a year earlier. BOŚ nevertheless remains the bank with the highest share of problem loans in the group analyzed – 13.2%, against an average of 4.57%. At the same time, however, it is reducing that ratio faster than any other bank in the sector, by 1.5 percentage points, as it seeks to bring the figure down to 8%.

Alior Bank is also recording a rapid decline. In its case, the ratio stands at 5.4%, down 1.3 percentage points from a year earlier.

Legal risk: major mortgage lenders sharply reduce provisions and the number of active lawsuits

One piece of good news is the decline in provisions for legal risk related to foreign-currency mortgages, primarily Swiss franc loans, but also euro-denominated ones. Total provisions of this kind among the nine banks analyzed (excluding Citi) amounted to PLN 1.06bn (EUR 248m), 56% lower than a year earlier.

Interestingly, this was driven solely by sharp reductions at four banks – PKO Bank Polski, Bank Pekao, Bank Millennium and mBank – while all the remaining institutions faced rising costs in this area.

The steepest increase, amounting to 109%, was recorded by Alior Bank. Although the bank issued relatively few Swiss franc mortgages, it also sets aside provisions for euro-denominated loans. It is also the only bank in the group where the number of lawsuits related to foreign-currency loans increased year on year – by as much as 74%, to 321 cases – which materially contributed to the size of the provision.

Alior is also the only major bank disclosing provisions related to złoty-denominated loans tied to lawsuits invoking the so-called “free credit sanction”, under which borrowers challenge the validity of consumer-credit agreements. In the first quarter, the bank did not create additional provisions for this purpose. Nevertheless, the number of such lawsuits continues to rise and has now reached 4,690.

The sharpest reduction in provisions – 89% year on year – was reported by Bank Millennium. It was this lender that first began offering settlements to Swiss franc borrowers in 2020. The bank has now concluded 31,000 such agreements, nearly twice the number of cases still being litigated in court (16,600).

When it comes to reducing the number of lawsuits, however, no bank matches mBank. In its case, the number of claims fell by as much as 61%. The reason lies in the attractive settlement terms offered to borrowers who had already filed lawsuits. The bank has now concluded 33,400 Swiss franc settlements, making it the sector’s runner-up behind PKO Bank Polski, which historically issued the largest number of Swiss franc mortgages and has signed 63,500 settlements.

The sector’s operating costs rose 10% year on year, with banks responding in different ways to mounting cost pressures as well as credit and legal risks. Erste Bank Polska recorded the sharpest increase in expenses (+23% year on year), including PLN 90m (EUR 21m) spent on rebranding and integration. Alior Bank, by contrast, limited cost growth to 2% thanks to a 5% reduction in headcount. In the area of legal risk, provisions fell 56% year on year to PLN 1.06bn (EUR 248m), driven mainly by dramatic improvements at Bank Millennium and mBank. The latter reduced the number of active Swiss franc mortgage lawsuits by as much as 61%.
Higher corporate income tax (30%), increased contributions to the Bank Guarantee Fund (BFG), and interest-rate cuts weighed heavily on the sector’s profits. Combined net profit for the ten banks fell 14.9% year on year to PLN 8.04bn (EUR 1.88bn), while net interest income declined by 3% to PLN 21.87bn (EUR 5.11bn). The steepest profit declines were recorded by BNP Paribas Bank Polska (down nearly 50%) and Erste Bank Polska (-40.7%). By contrast, Bank Millennium (+68%) and mBank (+35%) emerged as the strongest performers, benefiting from a sharp reduction in provisions for legal risk related to Swiss franc mortgages.
ING Bank Śląski was the only bank to resist the decline in interest income, while the sector compensated for losses with an 8% increase in fee-and-commission income. ING was alone in improving its net interest result, limiting the decline in margin to just 0.16 percentage points, helped in part by a 13% increase in balances held in current accounts. In the fee-and-commission segment, mBank and Bank Ochrony Środowiska (BOŚ) led the way, each posting 15% year-on-year growth on the back of expanding brokerage operations.