Unpaid debts of Polish entrepreneurs and consumers are a major issue in Polish economy, causing companies to lose approx. PLN 180 bn every year

More than 2.5 m Poles experience difficulties in the timely repayment of their liabilities. Unpaid debts is a major problem for the economy as a whole and for the enterprise sector, with businesses spending 5-6 percent of the total costs on dealing with the issue. In statistical terms, the percentage of recovered debt is low. For instance, bailiffs collect around 20 percent of debts. The experts of the Conference of Financial Companies (KPF) emphasise that the suggested changes in the regulations referring to the expiry of claims, with a more protective approach towards debtors, might make these statistics even worse.

The data of the National Bank of Poland demonstrate that between 2014 and 2016 the total value of household debt in Poland increased by 23 percent. Today 40.5 percent of households have taken out loans, of which 13.9 percent are mortgage loans. The remaining 32 percent are other facilities: consumer, consolidation, business and professional loans, non-bank loans and credit card debt. For 5.2 percent of households the mentioned liabilities (unrelated to mortgage loans) exceed PLN 50,000.

“Half of households in Poland do not have any financial liabilities. Even more, 80 percent, have no problems with managing their liabilities. So the problem concerns around 20 percent of them. 6 percent of these households experience substantial difficulties in this area, and only for 0.3 percent the issue is serious enough to verge on, or actually reach, insolvency," said Andrzej Roter, the President of the Conference of Financial Companies in Poland.

Problems with meeting payment deadlines refer not only to unpaid credit and loan instalments, but also phone and utility bills, alimonies and fines, including ticket fines.

“Banks are losing several billion zlotys due to borrowers who do not pay back their loans. As consumers, we gain between ten and twenty billion zlotys from bank deposits every year. If all bank loan debtors paid their money back, households would have PLN 15-17 bn more money from interest. This amount would have serious consequences for economic growth and consumption, which is visible, for instance, in the amounts contributed to the economy due to the 500+ family support programme [more than PLN 20 bn – ed.],”  Andrzej Roter emphasised.

The President of KPF pointed out that households and debtors who do not pay their liabilities on time are a tremendous problem not only for banks but, first of all, for the economy as a whole and for the enterprise sector. Companies are not willing to cooperate with debtors, and are even prepared to apply a “cash only” approach to them. As a result, 8 in 10 businesses encounter difficulties when recovering their receivables.

“Polish companies, in order to deal with the issue of their business partners being unable to settle their liabilities, spend 5-6 percent of their total costs. In terms of the economy as a whole, this equals approx. PLN 150-180 bn. Let's imagine how beneficial for the economy it would be if such costs did not have to be incurred by companies. The mentioned amounts would raise their income and the State budget would receive taxes on them. It is also worth noting the potential for boosting economic growth – approx. 600,000 SMEs in Poland hire professional companies to manage their receivables; such companies recover approx. PLN 20 bn per year. However, an equal amount yearly is lost. How high would Polish GDP be if the money went to enterprises?” Andrzej Roter said.

In the survey entitled “The financial morality of Poles” carried out at the request of KPF and partners, the respondents unanimously claimed that financial liabilities should be paid back. At the same time, there is a growing acceptance for methods used to avoid that (e.g. changing the ownership title to property to one's family members to avoid its being taken by creditors, changing bank account number to avoid its seizure by a bailiff or unregistered work to avoid the debt's being recovered from one’s earnings). Poles are willing to justify the breaching of legal and ethical standards in one fifth of such situations.

“In recent years the debt recovery sector has made numerous efforts to convince the market and the debtors themselves that it is part of the financial services sector. It has also changed the philosophy of approaching debtors – today they are primarily regarded as customers. The conciliatory philosophy is such that during the first meeting, if the debtor is reached, the focus is on how much the debtor is able to pay and not on the necessity to pay it all immediately,”  Andrzej Roter explained.

The President of KPF expressed a belief that the situation could become worse because of the changes in regulations, as proposed by the Ministry of Justice, referring to the expiry of claims and the debt enforcement procedure.

“The new regulations may intensify the moral hazard phenomenon. If this is the case, the balance between the proper understanding of rights and obligations by debtors themselves may be compromised. Any solutions likely to upset this balance may affect market behaviour and, after some time, negatively impact people's moral principles and harm the economy,” Andrzej Roter said.

The Ministry of Justice proposed amendments to the Civil Code, the Code of Administrative Procedure, and the Act on Consumer Rights, whose main objective is to introduce the lack of possibility of seeking court enforcement of expired claims, even if the debtor feels obligated to repay his/her debt.

The President of KPF states that in terms of the debt enforcement rate, the sector in Poland does not differ from European markets. The maturity of the financial market in Poland has turned out to be an impulse for foreign investors to enter the Polish market. This is why the major global players have decided to launch their activities in our country. Poland is also beginning to set trends in the field of technological advancement and the customer approach philosophy, which has proven effective on foreign markets.

“Companies with the Polish capital are very successful in investing and launching operations in other countries. KPF members are present, i.a., in the Czech Republic, Slovakia, Germany, Bulgaria, Romania, Spain and Italy, and they succeed in their efforts. Their achievements stem from the fact that their corporate culture level is often higher than the European average. Their customer approach philosophy, backed by good practices, impress foreign markets,”  Andrzej Roter emphasised.