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The orderly transfer the banking sector to private owners, especially international banking groups, was a key part of the success of Poland’s transition since 1990. Yet that achievement, which helped bring foreign investment and prevent crony capitalism, is now being undone as the government silently renationalises large swaths of the banking industry. In the autumn of 2015, the state-owned insurance company PZU acquired a substantial stake in Alior Bank, Poland’s most successful entrepreneurial lender. Founded in 2008 by Wojciech Sobieraj, a former Boston Consulting Group manager, with €400m in equity backing from an Italian investor, within a few years Alior became a major full-service competitor to established banks and one of the most successful Polish start-ups. This month, UniCredit, the Italian banking giant, completed the sale of its controlling stake in Bank Pekao, Poland’s second-largest bank, to PZU and the Polish Development Fund for a total of 10.6bn zlotys (€2.5bn). Unicredit’s investment in Pekao was the biggest equity stake held by an international bank in a Polish bank. The idea of “repolonising” the banking industry predates the current government of the Law and Justice Party (PiS) and its programme to restore government control over the commanding heights of the economy. During the global financial crisis, legitimate concerns were raised over the ability of international owners to provide liquidity to their Polish and other central European subsidiaries, if necessary. beyondbrics Emerging markets guest forum Beyondbrics is a forum on emerging markets for contributors from the worlds of business, finance, politics, academia and the third sector. All views expressed are those of the author(s) and should not be taken as reflecting the views of the Financial Times. Initially, this argument was used to allow larger equity stakes to float freely on the Warsaw Stock Exchange (GPW) while preserving the private nature of the banks. More recently, however, the government has been busy buying controlling stakes in banks (through PZU), resulting in a de facto nationalisation of financial institutions. Last year, Alior also purchased — and then merged with — Bank BPH, one of the banks spun out from National Bank of Poland in 1989 and until recently controlled by GE Capital. In addition, Poland’s biggest bank, PKO BP, has remained throughout the transition in the hands of government. As a result, four major banks, representing more than 50 per cent of Polish banking assets find themselves today under state control. According to Mateusz Morawiecki, finance and development minister, renationalisation is a welcome development. “Having the majority of the banking sector in Polish hands is very good news for the Polish economy, as we can better control credit policy,” he said. Private investors disagree. Over the past month, the WIG Banki, an index tracking banks listed on the GPW, lost 2.44 per cent, while the WIG, the broadest index, was up 0.83 per cent. Over the same period, Pekao and Alior lost 9.6 per cent and 12.96 per cent respectively. The takeovers led to the firing of Luigi Lovaglio, Pekao’s chief executive and one of the most respected bankers in Poland, and of Wojciech Sobieraj, his counterpart at Alior Bank. Some of the banks’ newly appointed board members are of dubious qualifications but have the political backing of PiS. Sabina Bigos-Jaworowska, a friend of Beata Szydlo, prime minister, from her hometown of Brzeszcze, landed a plum job as a member of Pekao’s supervisory board. Her professional background? A long-time director of a small-town health clinic. Cronyism aside, PiS’s quest is ideological. Mr Morawiecki’s plan is for the government to take a “leading role” in Poland’s economy. This is impossible without at least a degree of control over the banks. That way, the government will be able to pursue its own “credit policy” — directed state lending to companies and projects picked by the state on political grounds. Examples include a 3.2bn zloty loan provided by PKO BP to the state-owned Polish Development Fund to finance its participation in the Pekao transaction. Thanks to far-reaching reforms of the banking sector enacted early in Poland’s transition to a market economy, such “directed lending” disappeared at the beginning of the 1990s. The practice still survives, for example, in neighbouring Belarus. The results there, which include a semi-permanent banking crisis, are not encouraging. Poland’s drift towards a state-controlled banking industry comes hand in hand with the disappearance of real entrepreneurship and dynamism in the sector. In the 1990s, both the government and the National Bank of Poland saw entrepreneurship in banking as a means of speeding up privatisation and fostering competition across the economy. More recently, they have been much more squeamish. In 2014 and 2015, for example, Poland’s Financial Supervision Authority ordered two private equity funds to divest their stakes in two smallish banks and suggested that it would no longer allow private equity firms to own banks. As a result, it is very difficult to imagine a banking start-up like Alior Bank succeeding in today’s Poland. None of this bodes well for the future of Mr Morawiecki’s ambition to dramatically boost investment and growth. While reasonable people may disagree about the solutions to the country’s real or imagined “middle income trap”, emulating Belarus seems unlikely to be the right way to go. Martin Miszerak is chief executive of Miszerak & Associates, an adviser to private equity funds, and a former adviser on privatisation to the Polish government. Dalibor Rohac is a research fellow at the American Enterprise Institute in Washington DC.