Bank Pekao: Poland's Financial Backbone — From Diaspora Bank to National Champion

A 96-Year Journey Through War, Communism, Foreign Ownership, and Repolonization

I. Introduction & Episode Roadmap

The scene opens not in Warsaw's gleaming Forest Tower—the current headquarters of Bank Pekao—but in the smoky, document-strewn offices of the Polish Ministry of Finance in March 1929. The CEO of Pocztowa Kasa Oszczędności, Henryk Gruber, observed that there was a demand for a bank that could provide financial services to the eight million Poles living outside the country. Eight million. That number alone tells the story of interwar Poland: a newly reconstituted nation whose diaspora scattered across four continents represented both a challenge and an opportunity.

What emerged from Gruber's vision was not merely another state-owned bank. The bank's primary mandate was to address the financial requirements of Polish emigrants abroad, including savings deposits, remittances, and credit services tailored to diaspora communities, reflecting Poland's interwar efforts to maintain economic ties with its expatriate population amid significant emigration waves.

Fast forward nearly a century, and the numbers have changed dramatically. Bank Polska Kasa Opieki S.A., commonly known as Bank Pekao, is a universal commercial bank headquartered in Warsaw, Poland, established on 17 March 1929 by the Ministry of the Treasury with an initial share capital of PLN 2.5 million. As the second-largest bank in Poland by total assets, which stood at approximately PLN 334 billion as of mid-2025, it provides a wide range of services including corporate banking, private banking, retail banking, and asset management.

The central question animating Pekao's story is deceptively simple: How did a bank founded to serve Polish emigrants become entangled in Italy's largest banking group, only to return to Polish hands through a controversial "repolonization" campaign?

Bank Pekao's ownership journey has been dynamic, transitioning from state control to private hands and back towards significant state influence. This trajectory mirrors Poland's own tumultuous twentieth century—the devastation of World War II, the grey decades of communist rule, the shock therapy of market transition, and the current era of national reassertion.

Key themes thread through this narrative: nation-building through banking, the politics of privatization, surviving the Swiss franc mortgage crisis that nearly destroyed competitors, and a digital transformation that has positioned the bank as a technological leader. Bank Pekao SA as the first bank launched an ATM in Poland, issued the first credit card, launched a brokerage house, applied biometrics in banking in practice.

What follows is the story of an institution that has outlasted empires, survived occupation, navigated the transition from central planning to capitalism, and now stands at the threshold of another transformation—a potential mega-merger that could reshape Poland's financial landscape for decades to come.

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II. Founding Vision & Pre-War Origins (1929–1939)

The timing of Bank Pekao's birth could hardly have been more inauspicious. Operations commenced formally on 29 October 1929, coinciding with the deepening global economic challenges of the Great Depression, which nonetheless positioned Pekao as a specialized institution distinct from domestic commercial banks. The world was collapsing into economic chaos, yet here was a new institution setting out to serve the far-flung communities of Polish emigrants.

Henryk Gruber served as the inaugural chief executive officer, with Emil Modrycki appointed as the first director, overseeing the bank's early organizational setup in Warsaw. Gruber was no ordinary banker. A decorated military officer who had served in the Polish Legions during World War I, he received the War Order of Virtuti Militari—Poland's highest military decoration. Henryk Gruber's archive also includes documents and photographs of the most important people in interwar Poland, for example, letters from the Marshals: Józef Piłsudski and Edward Rydz-Śmigły, as well as from former Polish Presidents: Ignacy Mościcki and Stanisław Wojciechowski.

The bank's founding structure reflected its state-backed but commercially oriented mission. The company's shareholders were Pocztowa Kasa Oszczędności, Bank Gospodarstwa Krajowego and Państwowy Bank Rolny. This constellation of state financial institutions provided both capital and credibility, allowing Pekao to rapidly establish its international network.

The expansion was breathtaking. The early years of Bank Pekao establishment saw significant international expansion, with branches opened in France, Argentina, the United States, and Tel Aviv. By the outbreak of war, the bank had become a truly global institution. By September 1939, the bank had established a significant international footprint with 25 offices spread across countries like France, Argentina, the United States, and Palestine.

What made this model work? The bank served as a financial lifeline connecting Polish emigrants to their homeland. It facilitated remittances, managed savings accounts denominated in foreign currencies, and provided credit services tailored to diaspora communities. The name itself—"Polska Kasa Opieki" or "Polish Bank of Aid"—captured this mission of care and connection.

The bank's primary mandate was to address the financial requirements of Polish emigrants abroad, including savings deposits, remittances, and credit services tailored to diaspora communities. This focus on serving Poles wherever they lived gave the bank a unique character—it was simultaneously a domestic institution and an international network, a commercial enterprise with an explicitly nationalist purpose.

The interwar period represented Poland's ambitious nation-building project, and Pekao was a key instrument in that effort. By maintaining economic ties with the diaspora, the bank helped preserve a sense of Polish identity across borders while channeling hard currency back to the homeland.

As September 1939 approached, Bank Pekao stood as one of the most internationally connected Polish institutions—with 25 offices spanning continents, it had achieved what few European banks of the era could claim. But the network that had taken a decade to build would face its ultimate test in the flames of world war.

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III. War, Survival & Communist Transformation (1939–1989)

The German invasion of Poland began on September 1, 1939. Seventeen days later, Soviet forces crossed from the east. For Bank Pekao, survival meant immediate action. During the German and Soviet invasions of Poland on September 1 and 17, 1939, respectively, Bank Pekao's headquarters were relocated to France to safeguard its assets and foreign accounts from seizure by occupying forces. The bank's French operations prioritized preventing German access to emigrants' deposits held in its 25 overseas branches.

Henryk Gruber himself fled westward with the bank's crucial archives. The grandchildren of Mr Gruber pay particular attention to his passport, in which stamps hide the two years spent escaping the Nazi German regime, until he finally settled in Argentina. After the outbreak of WWII, Henryk Gruber took the archive from Poland to Paris, and then, following the fall of France in 1940, to South America, when he lived for the rest of his days.

Warsaw lay in ruins by 1945. Yet even before the smoke had cleared, Pekao's surviving employees began the painstaking work of resurrection. Following the liberation of Warsaw in January 1945, surviving employees retrieved essential documentation from the city's rubble and recommenced limited operations, reestablishing links with the surviving foreign branches.

The new communist government faced a choice: dissolve this remnant of interwar Poland, or repurpose it for socialist ends. After the war, Bank Pekao closure was considered. However, the government decided that it was worth trying to obtain foreign currency from Polish communities abroad and so Bank Pekao was entrusted with tasks related to the so-called "internal exports". The so-called Pekao parcels were launched.

This decision proved fateful. The communist regime desperately needed hard currency, and Pekao's established connections to emigrant communities made it uniquely valuable. From 1945 onward, the bank reactivated its Warsaw headquarters and reconnected with overseas branches in cities such as Paris, New York, and Tel Aviv, channeling funds from emigrants—estimated to provide critical hard currency inflows equivalent to a significant portion of Poland's foreign exchange reserves in the early post-war years.

The "Pekao parcels" system epitomized the bank's new role. Emigrants could purchase goods in hard currency abroad, which would then be delivered to relatives in Poland—circumventing the chronic shortages of the planned economy while capturing precious foreign exchange for the state.

In 1960, the system evolved further. Much earlier, in 1960, the bank began issuing its own vouchers, "Bon Towarowy PeKaO", denominated in US dollars. These vouchers became a parallel currency in communist Poland. These stores sold imported luxury products, otherwise not available on the domestic market - candy, coffee, chocolate, liquors, household appliances, cars. In the course of time, the bon became the unofficial second currency of Poland, due to rising inflation of the złoty. In the 1960s, the price of one bon was 70-80 złoty, in the 1970s it rose to 150 zł, and in 1981, to 400 złoty.

The Pewex shops that accepted these vouchers became legendary. The offer of the bank for individual clients included a variety of goods covering, among others, groceries (including "Krakus" ham and western chewing gum), alcohol, cosmetics, textiles, household appliances, bicycles, motorcycles, cars, trucks, tractors, agricultural machinery, fuel, building materials, installation and sanitary equipment, and also apartments and furniture. This retail network was created with the establishment of the Pewex "internal export" company, in 1972 out of the bank's structures.

Pewex was created in the 1970s to help combat Communist Poland's foreign currency deficit. By the late-1960s, it had become apparent that the then socialist centrally-planned economy of Poland was inefficient. The rule of Edward Gierek led to a short period of economic prosperity.

The numbers were staggering. In 1974, the bank had around 91,000 registered accounts. At the end of the 1980s, the total value of foreign currency accounts was US$3.3 billion. This represented one of the largest pools of hard currency in the Eastern Bloc—a testament to both the size of the Polish diaspora and Pekao's effectiveness in channeling their resources.

In 1968, the Minister of Finance authorized the establishment of foreign currency accounts for persons working abroad in Bank Pekao. Monopoly on their conduct Pekao lost only in 1989 with the onset of economic reforms that swept in Poland and the communist bloc.

Why did Pekao survive when other banks were merged into the National Bank of Poland? Its unique diaspora expertise made it irreplaceable. No other institution possessed the international connections, the specialized knowledge, or the emigrant trust necessary to perform this vital function.

For investors analyzing Pekao today, this history matters. It demonstrates an institutional resilience that few banks can match—the ability to adapt to radically different political and economic systems while maintaining operational continuity. That same adaptability would prove crucial in the turbulent decades ahead.

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IV. The Transformation Decade: From Communism to Capitalism (1989–1999)

The fall of communism in 1989 unleashed Poland's "shock therapy"—Leszek Balcerowicz's radical program of price liberalization, privatization, and market reforms. For Bank Pekao, the transformation was profound. Following the political and economic reforms initiated in Poland after the fall of communism in 1989, Bank Pekao shifted from its prior role as a state-controlled institution focused primarily on foreign currency operations to a universal banking model encompassing retail, corporate, and investment services. This adaptation aligned with broader Polish banking sector reforms under the Balcerowicz Plan, which separated the National Bank of Poland from commercial functions and emphasized market-oriented operations, recapitalization, and exposure to competitive pressures amid high non-performing loans inherited from the socialist era.

The bank's foreign currency monopoly evaporated overnight. As part of the peaceful transition of the economic system in Poland after the 1989 revolution in Poland, the Polish economy was privatised and the ownership of foreign currency was deregulated. This made the Pekao cheques obsolete and soon afterwards most of the goods that had only been available from Pewex stores started to be sold in private shops as well.

Yet Pekao emerged as a pioneer rather than a victim of the transition. Bank Pekao SA as the first bank launched an ATM in Poland, issued the first credit card, launched a brokerage house, applied biometrics in banking in practice. These firsts established the bank's reputation for innovation that persists to this day.

The path to privatization was neither quick nor simple. Pekao, restructured as a joint-stock company, saw partial divestment through public offerings, but remained troubled due to non-performing loans inherited from the prior regime. The legacy of communist-era lending—often directed by political rather than commercial considerations—weighed heavily on the balance sheet.

The privatization process began in earnest in 1998. In June 1998, Bank Pekao SA commenced its privatization, with the State Treasury divesting 15% of its shares through a public offering, leading to its debut on the Warsaw Stock Exchange on June 30, 1998.

International investors recognized the opportunity. By mid-1998, the European Bank for Reconstruction and Development also became a shareholder, acquiring a 5.29% stake. The EBRD's participation signaled confidence in Poland's transition and in Pekao's prospects specifically.

A symbolic moment came in 1997 with the adoption of the bison as the bank's logo. This powerful symbol of Polish nature—the European bison had been saved from extinction through Polish conservation efforts—represented both tradition and strength. It would prove prescient: the bison would become inseparable from the Pekao brand, and its return would later symbolize the bank's "repolonization."

The great privatization debate of the 1990s raised questions that resonate to this day: Was Poland selling its crown jewels too cheap? Were foreign investors capturing the fruits of decades of Polish sacrifice and labor? These questions would resurface with new intensity when UniCredit eventually divested.

For investors, the 1990s established Pekao's template for navigating transition—a willingness to innovate technologically, a capacity to transform business models in response to regulatory change, and an ability to attract sophisticated international capital. These capabilities would be tested repeatedly in the years ahead.

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V. The UniCredit Era: Foreign Ownership & Growth (1999–2016)

On 3 August, 1999, Pekao SA became a member of the international banking group UniCredit. The acquisition marked the beginning of Poland's most significant experiment in foreign ownership of financial institutions—and sparked debates about economic sovereignty that continue to this day.

In August 1999, UniCredito Italiano (later UniCredit) and Allianz AG acquired a 52.9% stake in Bank Pekao SA for $1.09 billion, marking the bank's entry into international ownership and integration into a major European banking group. On 3 August 1999, Pekao officially joined the UniCredit Group, gaining access to advanced banking technologies, risk management practices, and a pan-European network that facilitated cross-border operations and client services.

The value question has sparked endless debate. UniCredit, which bought more than 50 percent of the bank's shares for about PLN 4 000 million in 1999, now sells less than 33 percent for PLN 10 600 million, while having received over a dozen thousand million zlotys in dividends. Critics decried a "garage sale" of national assets; defenders pointed to the transformation UniCredit enabled.

A careful analysis published by Poland's Civil Development Forum (FOR) challenged the conventional narrative. In 1999, UniCredit paid for one share of Pekao a price that was over 15 percent higher than the then-stock price and now resells those shares at a price close to the current price. For the last 17.5 years UniCredit has invested a total of PLN 15700 thousand million in nominal terms or PLN 20200 thousand million after inflation.

An accurate analysis shows that, contrary to the disturbing theses, we have no reason to conclude that in 1999 the State Treasury sold Pekao as "for a pittance." On the contrary, the price fixed in the privatization agreement was beneficial mainly to the seller, not to the buyer, i.e., UniCredit.

Under UniCredit's ownership, Pekao underwent significant modernization. This acquisition positioned Pekao as a cornerstone of UniCredit's expansion into Central and Eastern Europe, often referred to as the group's "New Europe" strategy. Under UniCredit's stewardship, Pekao underwent significant modernization, including the adoption of standardized IT systems and operational efficiencies derived from the parent group's expertise.

A pivotal expansion came in 2007 with the merger of Bank BPH assets. In order to assure better comparability with 2008, selected data for 2007 income statement are presented as combined data of the Bank Pekao S.A. Group and Pekao285, i.e. the part of Bank BPH SA merged with Bank Pekao S.A. as a result of the Spin-off of Bank BPH SA as registered on November 29, 2007. This merger, incorporating 285 BPH branches, significantly expanded Pekao's retail footprint.

UniCredit's tenure lasted until 2016, during which Pekao benefited from capital infusions and technological upgrades but faced tensions over UniCredit's broader Eastern European acquisitions, including a 2007 merger with Bank BPH that drew Polish regulatory scrutiny.

The Italian ownership period cultivated a conservative risk culture that would prove invaluable. During the period of UniCredit ownership from 1999 to 2017, Bank Pekao maintained a conservative approach to risk management, emphasizing prudent lending standards and robust provisioning for potential losses, which contributed to its resilience during the 2008 global financial crisis. The bank's mortgage portfolio exhibited limited exposure to high-risk subprime elements compared to some peers, aiding in minimizing non-performing loans.

This conservatism manifested most dramatically in the bank's approach to foreign currency mortgages—a decision that would prove to be worth billions of złoty as competitors faced crippling legal settlements. But that story deserves its own chapter.

For long-term investors, the UniCredit era demonstrates how international ownership can benefit domestic institutions through knowledge transfer, technology investment, and improved risk management—while also illustrating the political sensitivities that can accompany foreign control of strategically important sectors.

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VI. INFLECTION POINT #1: The Swiss Franc Mortgage Crisis & Pekao's Conservative Bet

In the early 2000s, a dangerous financial product swept through Poland's housing market. The FX mortgage became a big business in 2004, when Poland joined the European Union, with hundreds of thousands Poles taking mortgages in foreign exchange, mainly in Swiss francs.

The arithmetic seemed compelling. In 2008, for example, the annual interest rate in Zlotys was around 8.7%, compared to the one in Swiss francs 4.4%. Borrowers could save nearly half their interest costs by denominating their mortgage in Swiss francs. What could possibly go wrong?

Banks in early 2000s encouraged borrowers to get mortgages in Swiss francs to benefit from lower interest rates in Switzerland, but the value of the Swiss currency spiked and borrowers were left with higher repayments.

Bank Pekao made a fateful choice—one that ran counter to competitive pressure and short-term profit maximization. Unlike some of its rivals, Pekao, which is 59.28 percent-owned by Italy's UniCredit, has not extended foreign currency mortgages since 2003, except to borrowers who derive their income from abroad. Few institutions have been more conservative than Poland's Bank Pekao.

This decision came at a cost. Mortgages account for 70 percent of consumer loans at Pekao, and the bank's refusal to ramp up foreign currency lending has caused growth to lag behind. Net income rose just 7.9 percent in the first half of 2008, to 1.97 billion złoty (then worth $926 million), compared with a 44 percent rise in first-half earnings at PKO, to zł1.85 billion.

Then came "Black Thursday"—January 15, 2015. Initially convinced by banks that the franc was a stable currency, debtors saw their outstanding debt and monthly repayments soar after the czarny czwartek (Black Thursday) event in 2015 when the Swiss National Bank unpegged the franc from the euro.

Enter 15 January 2015: Switzerland announced scrapping its currency peg with euro of 1.20 to the euro. The Swiss franc jumps 20%. Polish Zloty to Swiss franc jumps from 3.5 to 5 Zloty overnight. Since the collapse of Lehman Brothers, the impact was even bigger when Zloty stood at 2.18.

The crisis devastated both borrowers and lenders. In the ensuing legal disputes, Polish courts have overwhelmingly ruled against banks, and many lenders have offered to convert Swiss franc loans into zlotys. Poland has already seen the "first victims of high provisions," Sobolewski said. Foreign-currency mortgages were a significant reason for the collapse of Getin Noble Bank SA, which entered an orderly restructuring in late 2022, while large legal provisions for Swiss franc mortgages were one reason for a financial recovery program at Bank Millennium SA.

Pekao's position could hardly have been more different. Bank Pekao said this risk is fairly negligible for the lender and it will not affect its dividend payout abilities. The bank's tiny exposure to CHF-denominated loans—around 3% of the market—insulated it from the carnage.

Bank Pekao's asset quality remains strong compared to the market, with one of the smallest CHF mortgage loan portfolios and high reserve coverage, limiting its risk exposure in this area.

Even today, when the bank does set aside provisions for CHF mortgage legal risk, the amounts are manageable. Evolving regulations, particularly concerning consumer protection and legal risks associated with Swiss franc loans, necessitate substantial financial provisions. Bank Pekao recognized a provision of PLN 370 million for CHF loan legal risk in Q4 2024 and anticipates a further PLN 309 million for CHF mortgages and PLN 108 million for consumer protection issues in Q2 2025. These are rounding errors compared to the billions that have crushed competitors.

The lesson is simple but profound: conservative lending pays off. In an era of aggressive growth targets and quarterly earnings pressure, Pekao's willingness to sacrifice short-term market share for long-term stability proved prescient. This same conservative DNA continues to inform the bank's approach to risk today.

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VII. INFLECTION POINT #2: The "Repolonization" — Return to Polish Ownership (2016–2017)

By 2016, UniCredit faced mounting pressures. On 13 December 2016, despite the annual European Central Bank (ECB) Supervisory Review and Evaluation Process (SREP) lowed the CET1 ratio (transitional basis) requirement of UniCredit from 9.75% to 8.75%, the bank announced a massive €13 billion recapitalization of the bank, as well as €8.1 billion loan loss provisions and net restructuring charges of €1.7 billion in the fourth quarter of 2016.

The sale of Pekao fit a broader strategic pivot. UniCredit was retreating from Eastern Europe, shedding assets to shore up its capital position. In December 2016 UniCredit sold Polish bank Bank Pekao. UniCredit had already sold part of the stake in FinecoBank in mid 2016, as well as sold Ukrainian bank Ukrsotsbank to Alfa Group in January 2016.

On the Polish side, the Law and Justice (PiS) government had made "repolonization" of the banking sector a stated policy objective. This shift aligned with the Polish government's strategy under the Law and Justice (PiS) administration to strengthen national control over key financial institutions, reducing foreign influence in the banking sector.

The deal was announced in December 2016 and closed in June 2017. As a result of the settlement, on 7 June 2017, of the transaction for PZU and PFR S.A. (PFR) to buy 86,090,172 shares in Bank Pekao from UniCredit S.A. (UniCredit) representing 32.8% of the bank's share capital and entitling them to exercise 86,090,172 votes representing 32.8% of the total number of votes, PZU and PFR jointly exceeded the 25% threshold of the total number of votes in the bank. The settlement resulted from the agreement signed on 8 December 2016 by PZU and PFR with UniCredit to acquire a 32.8% equity stake in Pekao for a total amount of PLN 10.6 billion.

The price per share was PLN 123. It was one of the largest transactions in the European banking sector in recent years.

The structure split the stake between two state-controlled entities. The transaction is structured so that PFR will directly acquire 12.8% of the shares in Bank Pekao in two tranches for a total amount of PLN 4.1 billion (EUR 1.025 billion approx.), while PZU will indirectly acquire a 20% stake in Bank Pekao for a total amount of PLN 6.5 billion (EUR 1.625 billion approx.).

The political symbolism was explicit. Prezes Polskiego Funduszu Rozwoju Paweł Borys zwraca z kolei uwagę na fakt, że po kilkunastu latach Pekao jest znów polskim bankiem i wraca na rynek znana klientom marka żubra. To oznacza, że udział rodzimego kapitału w sektorze bankowym zwiększy się do ponad 50 proc., co jest istotne z punktu widzenia stabilności sektora bankowego oraz zrównoważonego rozwoju gospodarczego. ("After about a dozen years, Pekao is again a Polish bank and the well-known bison brand returns to the market. This means that the share of Polish capital in the banking sector will increase to over 50%, which is important for the stability of the banking sector and sustainable economic development.")

Market skepticism was palpable. As one banker observed to Euromoney: "It's a very large bank and was a very big equity cheque to write, but I think people were also asking themselves if they really wanted to be competing against PZU and the Polish state. The perception was that it wouldn't be a level playing field."

Critics noted the uncomfortable reality of PZU now controlling stakes in two competing banks. In this way PZU now has strategic packages in two banks and one problem. It will not be able to combine them. And only the merger of Alior and Pekao could create a new quality on the Polish market – it would accelerate further mergers and acquisitions and open the opportunity for further steps in the repolonization of the banks.

The new ownership structure that emerged: Now Powszechny Zakład Ubezpieczeń owns 20% of the company, Polish Development Fund 12.80%, UniCredit 6.28% and others 60.94%.

The bison logo returned to Pekao's branches and ATMs—a visible symbol that the bank had come home. But the question of what Polish ownership would mean for the bank's strategy, governance, and competitive position remained open. The answer would unfold over the years that followed.

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VIII. Modern Era: Digital Transformation & Strategic Reinvention (2017–Present)

Under Polish ownership, Pekao embarked on an ambitious transformation. The 2018-2020 strategy, branded "The Power of the Polish Bison," focused on what management called "smart growth"—profitable expansion rather than market share at any cost.

The 2021-2024 strategy, titled "Responsible Bank. Modern Banking," pushed further into digital channels. The results have been striking. The number of active mobile banking customers increased by 9% year-over-year to 3.5 million, with digital sales accounting for 89% of total sales, up 6 percentage points from Q1 2024.

The bank's digital transformation has accelerated across all dimensions. Further demonstrating its growth trajectory, new cash loan sales increased by 25% in Q1 2025, with a significant 89% of these loans being processed remotely, highlighting the bank's digital transformation strategy and its impact on customer acquisition.

Financial performance has been robust despite significant headwinds. The reported net profit was PLN 1.685 billion. This enabled the payment of dividends, amounting to PLN 4.8 billion, or 75% of the profit for 2024, which equated to PLN 18.36 per share.

Bank Pekao reported a net profit of PLN 1.7 billion for Q1 2025, with return on equity (ROE) reaching an impressive 20.5%. The bank maintained efficiency with a cost-to-income ratio of 38.5% including BGF (Bank Guarantee Fund) contributions, or 31.3% excluding these regulatory costs. Total assets grew to PLN 333 billion, representing a 5% increase year-over-year.

The bank has expanded through acquisition as well. At the end of 2020, Bank Pekao announced its acquisition of Idea Bank, which was subjected to compulsory restructuring to prevent bankruptcy. The acquisition was facilitated by Poland's Bank Guarantee Fund (BGF), an institution aiming to maintain stability in the financial system and resolving issues with financially distressed institutions.

Not every year has been smooth. In 2022 Bank Pekao's profits declined by 48.8% due to two main factors. The first reason was the introduction of payment holidays by the Polish government, which allowed mortgage holders to postpone payment instalments, which in turn led to a cost of 2.4 billion zlotys ($498.4 million) for the bank. The second reason were the increased provisions for legal risks as Bank Pekao expected a higher number of court cases related to the long-running Swiss franc mortgage affair.

But the bank recovered quickly. After initially predicting a decrease in interest margins for 2023, due to higher deposit costs and the potential of the polish central bank reducing interest rates, for the first quarter of 2023 the net interest income grew by 34% to 2.77 billion zlotys ($651.1 million), while the net profit surged by 60% to 1.45 billion zlotys.

Pekao has also positioned itself as a leader in Poland's energy transformation. In early 2023, Bank Pekao, alongside three other banks, signed a cooperation agreement with Orlen Synthos Green Energy (OSGE). The agreement aims to provide financing for the construction of several BWRX-300 small modular reactors (SMs) in the country. According to Bank Pekao's President, Leszek Skiba, the investment was made because nuclear energy production aligns with Bank Pekao's aspirations to be a leader in Poland's energy transformation.

The client base continues to expand. The bank's client acquisition strategy also showed strong results, with net customer acquisition continuing to grow. Current accounts for individual clients increased from 4.37 million in December 2020 to 5.69 million by March 2025.

CEO Cezary Stypułkowski captured the bank's momentum: "The first quarter is also the last of the reporting periods before announcing our short-term strategy. The results of the past quarter show that we have all the resources, capabilities, and means to enter the implementation phase of our ambitious plan with vigor. It's important that our lending activity, customer acquisition, and digital banking dynamics maintain their pace."

For investors, the modern era demonstrates Pekao's ability to execute complex strategic initiatives—digital transformation, regulatory adaptation, and opportunistic M&A—while maintaining financial discipline and shareholder returns.

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IX. INFLECTION POINT #3: The PZU Merger & Future Consolidation (2025)

The announcement came in June 2025, signaling a potential reshaping of Poland's financial landscape. Poland's biggest insurer, PZU, and second-largest bank, Pekao, both of which are partially state owned, have agreed a potential merger that would create a financial giant worth around 100 billion zloty (€23 billion).

On June 2, 2025, PZU SA and Bank Pekao SA signed a memorandum of understanding, which aims to reorganize and increase the efficiency of the capital group. The potential transaction mentioned in the memorandum, still subject to several conditions and necessary approvals, will release a capital surplus of up to PLN 20 billion.

The transaction structure is complex but elegant. If completed, the transaction would involve PZU first demerging by transferring its operations to a wholly owned subsidiary and becoming a holding company, then merging into Bank Pekao as the acquired entity.

The capital release mechanism relies on European banking regulations. In practice, this will allow the entity formed by the merger, with the bank as the dominant entity, to free-up a capital surplus of PLN 15-20 billion. This would not be possible while maintaining the current structure of the PZU Group, as new capital adequacy and solvency requirements resulting from changes made to the Solvency II directive, increasing capital requirements for insurers holding shares in banks, will come into force at the beginning of 2027.

The scale is transformative. The entity formed by the merger of the largest insurer and the second-largest bank in Poland will have a credit potential increased by approximately PLN 200 billion compared to the current group model. Both brands will retain their identity, distinctiveness, and autonomy in their business areas, as they have been operating within the PZU Group for many years, but the new group will be led by the bank, not the insurer.

The timing targets are ambitious. Pekao and PZU aim to complete the possible deal by the end of June 2026, which they said could free up about 15 billion to 20 billion zlotys ($4 billion to $5.3 billion) of the group's capital surpluses.

The Alior Bank question—PZU also holds a 32% stake in this smaller competitor—remains unresolved. The companies also plan to evaluate strategic options for PZU-owned Alior Bank as part of the consolidation. However, the memorandum does not specify a definitive plan for Alior Bank's future, notes Puls Biznesu. Options under consideration include an accelerated merger with Pekao prior to the PZU transaction – although the short timeframe makes this unlikely – or a potential sale of the bank.

Management sees the combination as essential for Poland's economic development. CEO Cezary Stypułkowski noted: "Together, we have managed to develop a concept attractive to shareholders, which effectively utilizes the potentials of PZU and Bank Pekao and optimizes the allocation of capital resources of these two large organizations. This will allow us to significantly increase the ability to finance the Polish economy."

Simultaneously, Pekao has unveiled its 2025-2027 strategy. ROE above 18%, C/I below 35%, 1.4 million young clients under the age of 26, 4.4 million active mobile clients, a leading position in corporate and public sector banking, and a dividend payout of 50-75% of annual net profit – these are some of the many goals of Bank Pekao S.A.'s new strategy for 2025-2027. In line with the strategy's slogan "Reaching Beyond the Horizon," the bank has set ambitious goals based on three pillars: GROWTH, ACCESSIBILITY, and EFFICIENCY.

ESG commitments are explicit. It announces achieving climate neutrality for the Pekao Group by 2050, as well as developing products and a cooperation model with clients supporting the sustainable transformation of activities. Over the next three years, it plans to finance green projects, such as renewable energy sources, low-emission transport, energy-efficient construction, and energy efficiency, with PLN 9 billion.

For investors, the merger represents both opportunity and uncertainty. The capital release could support increased dividends and expanded lending capacity. But execution risks are substantial—regulatory approval, legislative changes, and shareholder consent all represent potential obstacles.

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X. Playbook: Business & Investing Lessons

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Lesson 1: Conservative Lending Pays Off

Pekao's refusal to chase Swiss franc mortgage growth in the 2000s stands as perhaps the most valuable case study in Polish banking history. While competitors booked impressive short-term gains, Pekao accepted slower growth and lower market share. The payoff came over the following decades: while rivals faced billions in legal provisions and some collapsed entirely, Pekao's minimal CHF exposure preserved its capital and dividend-paying capacity.

Myth vs. Reality: The conventional wisdom was that banks needed to offer competitive FX mortgage products or lose relevance. Reality showed that disciplined risk management created lasting competitive advantage.

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Lesson 2: Institutional Resilience Trumps Ownership Structure

Pekao has thrived under radically different ownership regimes: state socialism, foreign ownership, and quasi-state control through PZU/PFR. This adaptability reflects deep institutional capabilities—operational expertise, risk management frameworks, and customer relationships—that transcend any particular owner.

For investors, this suggests that governance quality and management execution matter more than the nationality of the controlling shareholder.

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Lesson 3: Digital Transformation as Competitive Moat

The bank's consistent leadership in digital innovation—from Poland's first ATM to today's 89% digital sales ratio—demonstrates how sustained technology investment compounds over time. With 3.5 million active mobile customers and targets of 4.4 million by 2027, digital channels are now core infrastructure rather than optional add-ons.

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Strategic Framework Analysis

Porter's Five Forces: - Threat of new entrants: Moderate. Banking licenses and capital requirements create barriers, but fintechs increasingly contest specific product niches. - Supplier power: Low. Technology vendors are plentiful; the bank has leverage as a major buyer. - Buyer power: Moderate. Corporate clients have options; retail customers face switching costs. - Threat of substitutes: Rising. Digital payment providers, fintech lenders, and crypto solutions chip at traditional banking. - Competitive rivalry: High. PKO BP leads the market; international players like Santander compete aggressively.

Hamilton Helmer's 7 Powers: - Scale economies: Strong. As Poland's second-largest bank, Pekao spreads fixed costs across a massive customer base. - Network effects: Moderate. The bank's corporate banking network—serving one in two major Polish corporations—creates reinforcing value. - Counter-positioning: Limited. Core banking is commodity-like; differentiation comes through execution. - Switching costs: Moderate for retail, higher for corporate relationships. - Branding: Strong. The bison brand carries 96 years of history and national symbolism. - Cornered resource: The PZU relationship provides unique bancassurance distribution. - Process power: Emerging. The bank's digital capabilities and risk management frameworks represent accumulated know-how.

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Key Metrics for Investors

The two KPIs most critical for monitoring Pekao's ongoing performance:

1. Return on Equity (ROE): Currently at 20.5%, with a target of maintaining above 18% through 2027. This metric captures both profitability and capital efficiency—essential for a bank operating under Basel III constraints.

2. Active Mobile Customers: Currently 3.5 million, targeting 4.4 million by 2027. This metric serves as a proxy for digital transformation success, customer engagement, and future cost-to-serve advantages.

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Bull Case

The bull case for Pekao centers on the PZU merger unlocking PLN 15-20 billion in capital surplus, enabling both enhanced dividends and expanded lending capacity. Poland's economy continues to grow faster than Western Europe, banking penetration has room to increase, and the bank's positioning in energy transition financing—including nuclear SMR projects—aligns with secular trends. Digital transformation reduces cost-to-serve while improving customer retention.

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Bear Case

The bear case acknowledges execution risk in the complex PZU merger, potential for prolonged regulatory delays, and political sensitivity around state influence in banking. Interest rate normalization could compress net interest margins. The CHF mortgage issue, while small for Pekao, creates ongoing legal uncertainty for the sector. Competition from fintechs and international banks may intensify, particularly in lucrative segments like payments and wealth management.

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Regulatory and Accounting Considerations

Investors should monitor: - Progress on legislative changes required for the PZU merger - CHF loan legal provisions (currently manageable but ongoing) - KNF (Polish Financial Supervision Authority) recommendations on dividend policy - Implementation of new Solvency II requirements affecting the PZU relationship

The bank maintains strong capital ratios—Tier 1 at 16.2% and Total Capital Ratio at 17.4%—well above regulatory minimums, providing substantial buffer against adverse scenarios.

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Conclusion: The Bison's Next Chapter

Bank Pekao's 96-year history encompasses the full arc of modern Poland: from interwar nation-building, through wartime devastation and communist control, to market transition and European integration. The bank has outlasted the Second Polish Republic, the People's Republic, and now operates in the Third—each time adapting while maintaining institutional continuity.

The proposed merger with PZU represents the latest inflection point in this journey. If completed, it would create a financial institution of genuine European significance—one capable of financing Poland's energy transition, supporting its economic development, and competing with international players on more equal terms.

For long-term investors, Pekao offers exposure to one of Europe's most dynamic economies through an institution that has demonstrated remarkable resilience across nearly a century of turmoil. The conservative DNA that preserved the bank during the Swiss franc crisis, the digital transformation that has made it a technology leader, and the strategic positioning for energy transition financing—all suggest an institution prepared for the challenges ahead.

The bison endures. The question now is what territory it will roam.

Note: This analysis is intended for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence and consider their individual circumstances before making investment decisions.