Debt Concentration and the Purchase of Shares
The Banking Law of August 29 1997(1) has been amended by the act of August 23 2001.(2) The amendment is based on the provisions of Directive 2000/12/EC of the European Parliament and Council of March 20 2000 relating to the business activities of credit institutions.The aim of the amendment is to harmonize Polish banking law with European Union directives.
As the Banking Law was already largely compatible with EU regulations, the amendment has not extensively changed the domestic banking system. Rather, the Banking Law's shortcomings have been addressed.
New provisions concern:
- changes to legal institutions that are already regulated by the Banking Law in terms of (i) declarations of intent on electronic carriers of information, (ii) the supervision of share transfers in the share capital of banks, (iii) the requirements for entities that wish to establish a bank, (iv) the establishment of banks and branches abroad, (v) money settlements and (vi) the structure of banks' shareholders equity;
- new legal institutions in terms of (i) the business activities of credit institutions that are seated in Poland, (ii) the supervision of foreign credit institutions, (iii) the obligations of the Banking Supervisory Committee towards the European Commission, (iv) cross-border credit transfers, (v) consolidated supervision, (vi) the termination of agreements and (vii) netting futures in bankruptcy proceedings.
- issues which were supposed to be ruled by separate acts (eg, consumer loans and electronic money).
In principle, the new regulation comes into force three months after being published in the Journal of Laws (ie, on January 8 2002). However, some provisions will become binding on January 1 2002 or 2003, or upon Poland's accession to the European Union.
The most significant changes to the Banking Law are outlined below.
New terms are defined in the Banking Law's glossary. They include:
- 'credit institution';
- 'financial institution';
- 'dominant entity and subsidiary';
- 'financial holding company';
- 'mixed-activity holding company';
- 'ancillary banking services';
- 'close links';
- 'significant package of shares';
- 'cross-border activities'; and
- 'electronic money'.
Banking activities remain divided into two groups: (i) ordinary banking activities and (ii) those which are considered to be banking activities only if carried out by a licensed bank. The list of ordinary banking activities has been broadened to include, for example, electronic money transfers. Among the newly licensed activities to be carried out solely by banks are:
- the acknowledgement of bank guarantees;
- the issuance of letters of credit; and
- the settlement of accounts in respect of cancellations of electronic money.
According to the amending act a Polish bank's management board may act only in the bank's registered seat, as specified in the bank's statute, and foreign citizens who wish to sit on the board must be familiar with the Polish language.
The amending act specifies the scope of the Banking Supervisory Committee's permits. Now a permit must be obtained in order to exercise voting rights at shareholders meetings. This eliminates the possibility of control being taken of a bank without the committee's knowledge, even if the acquisition of a certain number of shares is not involved.
The obligation to obtain a permit also applies to those who (i) dispose of their shares after obtaining a permit to exercise voting rights at a certain level (10%, 20%, 25%, 33%, 50%, 66% or 75%), or (ii) lose their right to exercise the voting right at the previous level.
Applications for permits must be submitted through the bank in which the shares are being purchased. A bank must notify the committee within 14 days of its shares being purchased by a third party, if the new owner is entitled to exercise more than 5% of votes at the shareholders meeting.
The obligation to obtain a permit from (or to notify) the committee also arises where changes affect the number of votes at the shareholders meeting, whether by amendments in the bank's statute or by the expiry of privileged shares.
In addition to having the power to issue or refuse a banking permit, the committee may now withdraw permits.
The scope of the obligation to obtain a committee permit is widened to include the purchase or sale of bonds that are convertible into shares, as well as other securities that entitle or oblige their holders to purchase shares in a bank.
The grounds on which the committee may refuse to grant a permit to establish a bank or amend a bank's statute are expanded. A licence may not be granted if:
- the necessary legal requirements are not met;
- clients' interests are considered to be threatened; or
- the laws that apply where the founders', shareholders' or subsidiary's registered office is located could make it impossible for the bank to be supervised effectively.
Pursuant to the amendments, supervision of the establishment of a bank or branch abroad is restricted to those situations in which such actions are undertaken only by (or with the participation of) a domestic bank. In such cases, a separate permit is required from the Banking Supervisory Committee. From now on, entities other than banks may freely establish a bank abroad in accordance with the local law.
Once Poland becomes a member of the European Union, the legal status of foreign banks with their registered office in EU member states will differ from the status of those based in other countries. Within the European Union the freedom of establishment and operation will be respected. The amended act introduces some additional requirements for foreign bank branches, such as:
- the obligation to use the Polish names of banks and their legal forms;
- the requirement to keep a bank's records in Polish and in compliance with Polish accountancy standards; and
- the requirement for the branch manager and one of his or her deputies to be appointed pursuant to the rules applicable to Polish banks.
The new regulations concerning credit risk concentration will come into force once Poland becomes an EU member state. Taking into consideration the principle of freedom of establishment and operation, EU credit institutions will be able to conduct their activities in Poland through the establishment of branches, provided that the Banking Supervisory Committee is informed and their home-country institutions supervise their activities.
New provisions specify the notification procedures for domestic banks that carry out banking activities in other EU member states and for EU credit institutions that provide their services in Poland. The act stipulates that the services may also be rendered directly as cross-border transactions.
Upon Poland's accession to the European Union the committee must (i) seek the opinion of the competent authority of the relevant EU country before issuing a permit for the establishment of a bank in Poland, and (ii) inform the European Committee about certain changes to the Polish banking services sector.
Debt Concentration and the Purchase of Shares
The amending act modifies the regulations concerning debt concentration. The permissible level of a bank's commitment now comprises both its receivables and its contingent liabilities. In addition, the committee may allow the limits of credit commitment to be exceeded. Two separate limits of permissible credit commitment are provided for: (i) 20% of the bank's shareholders equity for entities connected with the bank in terms of organizational structure or capital, and (ii) 20% for all other entities. Exemptions from these limits are based on security criteria and/or the debtor's country of origin.
Since January 2001 banks have been able to purchase blocks of shares representing 10% or more of the share capital and/or votes at shareholders meetings, even if the value of the shares exceeds 15% of a bank's shareholders equity.
Under the amended act, information that must be made public at all places in which the bank carries out business includes:
- the fees for banking services;
- the balance sheet and auditor's opinion for the last audited accountancy period;
- the composition of a bank's management and supervisory boards;
- conditions for cross-border credit transfers; and
- lists of persons authorized to undertake obligations on behalf of the bank or its branches.
The receiver of a bankrupt party to an agreement with a bank may terminate the master agreement for futures transactions, but all individual transactions must be settled as prescribed in the master agreement. Alternatively, banks may terminate such agreements but must decide to do so immediately after the receiver has submitted his or her demand for the performance of all or certain transactions.
Generally, a bank's shareholders equity should be at the level of €5,000,000 (€1 million for cooperative banks). The method for calculating shareholders equity has been changed, and the differences between the applicable regulations and the relevant EU directives have been eliminated. Finally, shareholders equity is decreased by the whole loss of the current financial year and not merely by the material loss.
For further information on this topic please contact Mateusz Toczyski, Anna Dobaczewska or Joanna Mlot at CMS Cameron McKenna by telephone (+48 22 520 5555) or by fax (+48 22 520 5556) or by email ([email protected], [email protected] or [email protected]).
(1) Journal of Laws 140, item 939 as amended.
(2) Journal of Laws 111, item 1995.