Poland's Monetary Policy Shift and the Resurgence of Its Banking Sector: A Strategic Play for Investors

Poland's banking sector is undergoing a transformation as the National Bank of Poland (NBP) pivots from a hawkish to a dovish stance in Q2 2025. A 25 basis point rate cut in May 2025 marked the beginning of a broader easing cycle, with inflation moderating to 4.2% year-on-year and GDP growth projected at 3.6% for the year. This shift, coupled with selective relaxation of loan criteria, is reinvigorating credit demand and reshaping the risk-return dynamics for investors.

Monetary Easing and Credit Expansion: A Perfect Storm

The NBP's decision to ease monetary policy was driven by a favorable inflation trajectory, with core inflation nearing the upper bound of the 2.5% target range. Banks, sensing the opportunity, have responded by broadening access to consumer and SME loans. A recent NBP survey reveals that 70% of banks plan to increase loan limits and reduce margins for durable goods financing, while mortgage lending terms remain cautiously stable. This targeted relaxation is fueling robust demand, particularly in sectors like renewable energy and SMEs, where credit growth is expected to outpace the 3% annual average.

The impact is already visible in the performance of leading banks like mBank and Santander Bank Polska. mBank's net interest income (NII) grew by 3.7% year-on-year in Q2 2025, despite a slight decline in net interest margin (NIM) to 4.12%, as higher loan volumes offset lower yields. Similarly, Santander Bank Polska reported a 6.2% year-on-year increase in NII, with its NIM remaining resilient at 5.82% (Q2 2023 levels), reflecting strong pricing power in a competitive market.

Risk Mitigation and Capital Resilience: The New Baseline

The relaxation of loan rules has not come at the expense of risk management. Polish banks have demonstrated remarkable discipline in maintaining asset quality. mBank, for instance, reduced its non-performing loan (NPL) ratio to 3.5% in Q2 2025, supported by strong macroeconomic conditions and proactive legal risk management. Its Swiss franc mortgage liabilities—once a liability—have shrunk to 127 million zloty, with provisions covering 167% of remaining exposure. This cleanup has freed up capital for growth, with mBank's CET1 ratio at 12.75% and total capital ratio at 15.01%, well above regulatory requirements.

Santander Bank Polska has taken a similar approach, booking a PLN 547.6 million charge in Q2 2025 to address FX mortgage risks, a one-time cost that future-proofs its balance sheet. The bank's strategic sale of a 60% stake in Santander Consumer Bank for 3.11 billion zloty further highlights its focus on core operations, with a cost-income ratio of 28.2%—a sector-low metric that underscores operational efficiency.

Investor Implications: A Balancing Act

For investors, the shifting landscape presents both opportunities and challenges. The easing of monetary policy and regulatory tailwinds have improved risk-adjusted returns for Polish banks. Santander Bank Polska's stock, for example, has historically delivered a 72% hit rate in the month following earnings beats, with an average return of +5.2% since 2022. This pattern suggests that disciplined risk management and strategic restructuring can drive shareholder value, even in a high-interest-rate environment.

However, risks remain. Geopolitical tensions, particularly the war in Ukraine, and regulatory tightening under CRR3 and Basel IV could pressure margins. Investors must also monitor wage dynamics and inflation persistence, as core inflation remains near 4%. That said, the banks' strong capital buffers and proactive risk strategies provide a margin of safety.

The Path Forward: Strategic Entry Points

The Polish banking sector is at an inflection point. With the NBP signaling 125 basis points of rate cuts in 2025 and 75 basis points in 2026, the cost of borrowing is set to decline further, potentially boosting loan growth by 3–4% annually. For investors, this translates to a window of opportunity to capitalize on banks with strong balance sheets and operational agility.

mBank and Santander Bank Polska exemplify this potential. mBank's projected return on equity (ROE) of 15.6% and Santander's resilient NIM of 5.82% position them as leaders in a sector poised for consolidation. Additionally, the resolution of legacy FX mortgage issues and alignment with EU recovery funding (€65 billion allocated for 2021–2027) create a favorable backdrop for long-term growth.

Conclusion: A Calculated Bet

Poland's banking sector is navigating a complex but manageable transition. The NBP's dovish pivot, combined with selective loan rule relaxation, is stimulating credit growth without compromising risk management. For investors, the key lies in identifying banks that balance regulatory compliance with strategic innovation. While geopolitical and macroeconomic uncertainties persist, the sector's strong capitalization and disciplined execution make it a compelling case for those seeking exposure to a high-growth, underpenetrated market.

As the NBP continues its easing cycle and banks adapt to evolving conditions, the Polish banking sector stands as a testament to the power of proactive policy and prudent risk management—a rare combination in today's volatile global landscape.