In 2020, the WIG Banks index1 contracted by 29.6% y/y. The correlation between the WIG Banks index and the WIG20 index decreased to 80% (-10 p.p. y/y). The beta coefficient (in relation to WIG20) increased to 1.13, or by 0.15 y/y. The significant change in these indicators resulted from the relative weakness of the WIG Banks index compared to the main WIG20 index. It was also the weakest performance compared to other sectoral indices.
These declines were largely caused by the panic triggered by the COVID-19 pandemic. Investors were concerned about the deterioration of business conditions, which would have been of great consequence for the banking sector. The three consecutive interest rate cuts by the NBP to a level close to 0 were a significant environmental factor of a fundamental nature.
According to NBP data2, after the first 11 months of 2020, the interest income of the banking sector decreased by PLN 8.3 billion y/y, or 15.9%, compared to the corresponding period of 2019. In the same period, provisions increased by PLN 4 billion. Moreover, in 2020, the banks were more severely affected by the levy on the assets of financial institutions, which is a non-tax-deductible expense. The banking sector’s net profit plummeted by 45.5% y/y to PLN 7.9 billion after the first 11 months of the year. Moreover, by a recommendation issued at the end of March 2020, KNF imposed an effective ban on the distribution of dividends by banks due to the spread of the COVID-19 pandemic. As a result, the low profits and undistributed capital from 2019 contributed to a decrease in the return on equity (ROE) reported by banks after the first 11 months of 2020 to a level of approx. 3%.
1 It is an income-based index and thus, when it is calculated, it accounts for the prices of the underlying shares and the income from dividends and subscription rights