Polish banks are becoming increasingly important financiers of government borrowing, raising the risk that future fiscal pressures could reduce the financial system’s capacity to fund businesses and investment, according to a major new study of Poland’s banking sector.
The study, released on 9 October by the Polish Bank Association, or ZBP, and the Warsaw School of Economics, SGH, finds that banks absorbed approximately 37% of the increase in Treasury debt and liabilities of selected off-budget government funds between 2017 and the first quarter of 2026.
Over the same period, banks increased their holdings of Treasury bonds and securities guaranteed by the State Treasury by approximately PLN 561 billion — around $144 billion or €128 billion at the latest National Bank of Poland average exchange rates.
But the authors make an important distinction: they do not conclude that Poland is already experiencing a major credit squeeze.
The 9 October ZBP-SGH study says there is currently no basis for claiming that government borrowing is strongly displacing private-sector credit in quantitative terms.
Instead, it identifies a growing vulnerability that could become more important if public borrowing continues to rise at the same time as Polish companies increase demand for investment finance.
Government bonds now occupy almost a quarter of bank assets
The scale of the shift is unusually large by European standards.
At the end of the first quarter of 2026, Treasury debt instruments accounted for 24.7% of the assets of Polish banks, which the report says was the highest share among the EU countries included in its comparison.
All debt instruments combined represented about 39% of Polish banking-sector assets.
The report calculates that between 2017 and the first quarter of 2026, Treasury debt together with liabilities of off-budget funds serviced by state development bank BGK rose by approximately PLN 1.5 trillion — roughly $386 billion or €344 billion.
During the same period, Polish banks’ holdings of Treasury bonds and state-guaranteed securities increased by PLN 561 billion.
The authors describe the large domestic investor base as having two sides.
For the government, domestic banks provide a relatively stable source of demand for public debt and reduce reliance on foreign investors.
For the financial system, however, concentrating more sovereign exposure on bank balance sheets creates a stronger link between the condition of public finances and the condition of the banks themselves.
Why government bonds can affect lending
Holding government bonds does not automatically prevent a bank from lending to businesses.
Banks routinely hold sovereign debt for liquidity management, regulatory purposes and investment, and Poland’s banking sector currently has substantial capital resources.
The concern arises when exposure becomes sufficiently large that changes in bond prices, interest rates or perceptions of government credit risk begin affecting bank capital.
If investors demand a higher yield for holding Polish government debt, the market value of existing bonds generally falls.
Depending on how individual securities are classified on bank balance sheets, those valuation changes can affect profits, capital or both.
Lower capital buffers can then reduce the amount of additional lending a bank can undertake while still satisfying regulatory capital requirements.
The full PAB WIB 25/2026 report describes this as one channel through which fiscal risk can pass from the state to banks and ultimately into the real economy.
Banks still have substantial lending capacity
The report’s modelling does not suggest that Polish banks are close to exhausting their ability to lend.
Using the sector’s actual position at the end of the first quarter of 2026 and its assumed minimum capital requirements, the researchers estimate that banks had approximately PLN 598.1 billion of additional potential lending capacity.
That is about $153 billion or €137 billion at the latest NBP rates.
The existing credit portfolio used in the model was approximately PLN 1.375 trillion, meaning the estimated additional capacity was equivalent to 43.5% of the existing portfolio.
This PLN 598 billion figure is not cash sitting unused in banks and it is not a forecast that banks will actually lend that amount.
It is a modelled estimate of how much additional credit the sector could theoretically support before reaching the capital constraints assumed by the researchers.
Stress tests reduce that buffer but do not eliminate it
The study also tests how that lending capacity might change under financial shocks.
A hypothetical 3-percentage-point rise in market interest rates would reduce the estimated additional credit capacity by about PLN 149.2 billion, leaving roughly PLN 449 billion of headroom.
A separate 3-percentage-point rise in the sovereign issuer risk premium would have a larger effect, cutting potential lending capacity by approximately PLN 204.2 billion and leaving around PLN 394 billion.
Even in that stronger single-factor scenario, the report finds that the banking sector would retain significant capacity to finance the economy.
More complicated stress scenarios — covering risks including a fiscal-credibility crisis, energy shock, global recession, cyberattack and further fiscal expansion — produce larger effects.
Depending on the scenario, the study estimates reductions in banking-sector own funds ranging from 5.4% to 13.3%.
These are stress tests rather than forecasts.
The report explicitly says their purpose is to examine how risks could be transmitted through the system, not to predict that those events will occur.
No evidence yet of a strong crowding-out effect
This distinction is particularly important for companies seeking finance.
The report says the growth of banks’ government-bond portfolios does not in itself prove that government borrowing has displaced lending to businesses.
Banks can increase bond holdings because private credit demand is weak, because they have excess liquidity or because businesses themselves have become more cautious about borrowing.
The researchers therefore conclude that there is currently no basis for saying Poland is experiencing strong quantitative crowding-out of private credit.
The risk could nevertheless increase if three trends occur together: the government maintains large borrowing requirements, banks continue absorbing a substantial proportion of that debt, and companies begin demanding much more financing for investment.
In that situation, competition between public borrowing and private investment finance may become more visible.
It would not necessarily appear only as businesses receiving fewer loans.
The report says crowding out could also take the form of higher borrowing costs, shorter financing periods or tougher collateral requirements.
Poland’s fiscal position has deteriorated rapidly
The banking discussion sits within a broader deterioration in Poland’s public finances.
According to Statistics Poland’s EDP data for 2025, the general-government deficit reached 7.3% of GDP last year.
General-government debt under the EU’s EDP methodology reached 59.7% of GDP, compared with 48.8% in 2022.
EDP — the Excessive Deficit Procedure methodology — uses the EU’s harmonised definition of general-government debt, allowing public-finance figures to be compared consistently between member states.
It is therefore broader and methodologically different from some domestic measures of Poland’s state debt.
The ZBP-SGH report argues that the main concern is not simply that Poland’s debt ratio is high in absolute European terms.
Instead, the authors focus on the combination of a large deficit, rapidly increasing debt and growing debt-servicing costs while economic growth and labour-market conditions remain relatively favourable.
The report stresses that it is not forecasting an inevitable fiscal or banking crisis.
Why this matters for Polish companies
For businesses, the issue is ultimately about who will finance Poland’s next investment cycle.
Poland faces large financing requirements in energy, defence, infrastructure, digitalisation and industrial modernisation.
Banks remain an especially important source of external funding for established businesses and SMEs.
If their balance sheets become increasingly concentrated in government debt while fiscal or market shocks simultaneously reduce capital buffers, the amount or terms of financing available for corporate investment could deteriorate.
That risk matters particularly because Poland’s capital market remains relatively shallow compared with economies where businesses rely more heavily on bonds, institutional investors or other sources of private capital.
The report therefore argues that Poland should not rely solely on either public spending or bank lending to finance future development.
Report recommends reducing the state-bank concentration gradually
The researchers propose broadening the investor base for Polish public debt, developing long-term domestic savings and reviewing tax and regulatory incentives that may make Treasury bonds comparatively attractive to banks.
They do not recommend a sudden withdrawal of banks from government financing.
Instead, the report calls for gradual diversification designed to reduce the concentration of fiscal risk while preserving financial stability.
It also recommends a mixed approach to investment finance that combines public and European funds with bank lending and private capital.
Those recommendations belong to the report’s authors and should not be read as new policy decisions by the Polish government or the National Bank of Poland.
The publication itself also states that the views expressed are those of its authors rather than official positions of the institutions employing them.
A warning about the future, not a credit crisis today
The strongest conclusion for businesses is therefore more measured than a headline about government debt “blocking” bank lending would suggest.
Polish banks remain profitable and well capitalised, and the study estimates considerable unused capacity for additional lending.
Their large holdings of government debt also provide Poland with a stable domestic source of public financing.
The risk is what happens if that concentration continues to rise.
With Treasury instruments already accounting for almost a quarter of bank assets, sustained government borrowing could increasingly connect fiscal conditions, bond markets, bank capital and the availability of finance for private investment.
The ZBP-SGH study therefore presents the issue as an emerging constraint to manage before it becomes binding — not evidence that Polish businesses are already facing a government-induced credit crunch.
