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Following the privatization of Bank Gospodarki Z` ywnossciowez (BGZ) in 2004, 9 of the 10 largest banks in Poland are majority foreign-owned. The country's largest bank, PKO BP, was partially privatized through an initial public offer (IPO) in November 2004.

Credit to households, driven by strong demand for housing and consumer loans, grew in the first half of 2005 at about 15% year-on-year, contributing to the deepening of financial markets. In a setback to the transition process, at the end of February 2006 a new law restricting rates that banks can charge on loans came into effect. The report, available at www.ebrd.com/st, was published in early 2006 and points to a list of issues. As of 31 January 2006 the EU Bank had committed EUR 3,446 million to 147 projects which attracted a further EUR 9,173 million from sponsors and co-financiers (Central European Economic Review, 1999).

The literature suggests that in Poland, similarly to other CEE countries, there are barriers to land and housing development that make it difficult to translate 'potential demand' into 'effective demand'. One of these barriers has been the availability of residential mortgage credit.

In the past several years, however, the market for residential credit has grown and a large number of banks now offer mortgage credit. In addition, establishment of both mortgage banks and a second contract savings scheme is expected to increase mortgage lending (Laszek, 2004a). The expanding portfolio of housing mortgages and the increased number of lenders are also testimony to the transformation of the housing finance sector (Diamond, 2000).

The growth of residential loan portfolio was less vulnerable to any possible fiscal cut, due to the lack of subsidies since 1996. Compared to Hungary or the Czech Republic this could be considered a positive element of the Polish housing finance system.

Residential lending however represents one of the most dynamic segments within the Polish banking sector. The share of the five specialized banks in the housing financing market, the Rheinhyp-BRE, the HypoVereinsbank, the ´ Sla˛skiBank Hipoteczny (Mortgage Bank of Silesia), the GeBank Mieszkaniowy and the NykreditBank Hipoteczny (entering the market in 2003), was only 5.4% in 2003. Thirty commercial banks offering residential loans as part of their service portfolio are still controlling the Polish market. According to Laszek there were approximately 60 commercial and 600 cooperative banks operating in the Polish market as of July 2003.

There was remarkable decrease in residential loans' interest rates in 2003. A PLN-denominated mortgage loan typically carried a rate of about 6-8% p.a., while EUR or USD-denominated loans were normally quoted at about 4-5% p.a. The time span for loan repayment usually varies from 8 to 25 years. Foreign owned banks have secured 68% of total assets, 77% of equity and 63% of deposits dominating the market. Cooperative banks, although large in number, have only marginal importance (5% of total assets and 7% of deposits). Total residential loans (including the mortgage market) exceeded EUR 8.1 billion in 2003 (Financial Services Group, 2004). The average mortgage loans penetration as a percentage of GDP in the Euro zone was around 30% while in Poland the figure was below 5%, at the time. More than 52% of assets are controlled by the five largest banks that hold 59% of deposits and grant 47% of loans. There are only three banks (Bank Gospodarst wa Krajowego, BGZ, PKO BP), still controlled by the State Treasury. The top eight consumer credit providers granted loans of EUR 1.9 billion, representing 17% annual growth (Financial Services Group, 2004).

The Lukas Group (controlled by Credit Agricole, France) maintained its leading position in the consumer credit market. The group, operating through a network of 30,000 retail outlets, retained its market share of 30%.