It Takes Two to Tango. Capital Constraints and Bank Lending in Poland
The implementation of post-crisis (Basel III) capital requirements in 2015, followed by the introduction of the banking tax in 2016, marked a turning point for the loan-to-GDP ratio in Poland. Since Q4 2015, this ratio has declined by almost one-third, while the ratio of banks’ assets to GDP has remained relatively stable. However, the composition of bank assets has shifted – from corporate lending toward an increased share of sovereign bonds and retail loans, particularly mortgages. This article explores the key drivers behind this structural shift. Using a combination of qualitative insights and quantitative analysis – including dynamic panel data modelling based on Polish bank-level data from 4q2015 to 2q2025 – we examine how banks have adjusted their lending policies in response to changes in their lending capacity, defined as the surplus of regulatory capital above capital requirements. Our findings indicate that lending capacity has a positive effect on corporate lending and a negative effect on both sovereign and mortgage lending. We argue that banks make lending decisions based on capital constraints: the less constrained they are, the more likely they are to allocate capital to corporate loans, which are more capitalintensive. As lending capacity is influenced by both the stringency of regulatory requirements and banks’ ability to raise capital, we conclude that both factors have contributed to the decline in corporate lending since 2015, while simultaneously increasing the role of PLN-denominated mortgages and sovereign bonds in banks’ asset portfolios.