Acquisition of banks under KNF supervision

The act of 9 November 2018 amending a number of laws, including the Banking Law, in order to reinforce oversight of the financial market entered into force at the beginning of this year. A new chapter was consequently added to the Banking Law concerning forced acquisition of banks coordinated by the Polish Financial Supervision Authority (KNF). The act has now been in force for several months, and it is a good occasion to examine in more detail the new powers vested in KNF.

Under these provisions, KNF is empowered to issue a decision on acquisition of a bank by another bank if the target bank’s equity falls below the level of “capital standards” established in the Banking Law, or a danger arises that its equity will fall below that level. Additionally, the decision must not exert the negative consequences for the acquiring bank identified in the regulations, e.g. posing a danger to funds in accounts at the acquiring bank or leading to a reduction in the acquiring bank’s equity below a specified level. The decision may specify the conditions and timetable for the acquisition. Significantly, the acquisition must be made with the consent of the acquiring bank, but the approval of the acquired bank is not required.

A KNF decision on forced sale of a bank has far-reaching consequences. Upon the date indicated in the decision, the management board of the acquired bank is dissolved and the competencies of its remaining bodies are suspended, the acquiring bank assumes management of the assets of the acquired bank, and commercial proxies and powers of attorney issued by the acquired bank expire. As of the acquisition date indicated by KNF in the decision, the acquiring bank assumes all rights and obligations of the acquired bank.

An effect of this procedure is a change in ownership of the acquired bank, and it should thus be indicated what the “bought-out” shareholders can expect. Claims against the bank by third parties are to be paid in the first order out of the assets of the acquired bank. The bank’s shareholders can expect a distribution only out of the remaining assets, pro rata to the capital they previously held in the bank. The scope of damages that can be sought under general rules in the event of loss resulting from the acquisition of the bank has also been limited. The claimant cannot seek an amount higher than the difference between the amount that the claimant would have received if the court had declared the bank’s bankruptcy, and the amount obtained as a result of satisfaction of claims pursuant to the new procedure under the Banking Law.

It should be pointed out that the procedure outlined above is independent from proceedings provided for in the Bank Guarantee Fund (BFG) Act, under which BFG can also bring about the acquisition of a bank. KNF will only notify BFG of initiation of proceedings for issuance of a decision on acquisition of the bank. There is a risk that such duplication of similar regulations will become a trend, even though they could discourage investment in the Polish market, particularly by foreign investors. The consequences of introduction of the new regulations cannot yet be evaluated only a few months after they entered into force. It will have to verified in practice to what extent the new procedure will be exercised by the Financial Supervision Authority, and whether it contributes to the stability of the financial market or weakens the image of the Polish market in the eyes of investors.

Katarzyna Jaroszyńska, attorney-at-law, M&A and Corporate practice, Wardyński & Partners