Poland's decision to raise taxes on domestic banks to help fund defense spending took a bite out of Bank Pekao's third-quarter earnings, but the country's second-largest lender still managed to beat market expectations.
Net profit for the three months ended September came in at 1.52 billion zlotys (about $380 million), down roughly 20% from a year earlier, according to Reuters. That was ahead of the 1.46 billion zlotys consensus compiled by the company, helped by a resilient core business.
What drove the beat?
The bank's main moneymaker held up well. Net interest income – the difference between what a bank earns on loans and what it pays out on deposits – rose 2.8% to 3.53 billion zlotys. Reuters attributed the gain partly to lower deposit costs and continued loan growth.
Non-interest revenue also chipped in. Fee and commission income jumped 11.2% to 853 million zlotys, driven by charges tied to loans as well as investment and insurance products.
Pekao wasn't alone in beating forecasts. Reuters noted that peers mBank, Millennium, and Alior also topped analyst expectations, helped by solid day-to-day banking and easing costs tied to legacy Swiss franc mortgages – a long-running headache for Polish banks that has been fading as legal claims are resolved.
Why the tax matters
Poland raised its bank income tax as part of a broader push to boost defense spending, a move that acts as a steady drag on profitability for the entire sector. The higher levy is a fixed cost that doesn't shrink when revenue softens, so it eats into margins regardless of how the economy performs.
For investors, the key question is whether banks can grow their net interest income fast enough to offset that drag. That's where Pekao's own economists' outlook comes in: they expect cumulative policy-rate hikes of 75 basis points around the turn of 2026 and 2027.
Rate hikes tend to benefit banks because loan rates often reset faster than deposit rates, widening the spread between what they earn and what they pay. Reuters noted that Pekao's net interest income rose partly thanks to lower deposit costs – exactly the kind of setup where future hikes could boost margins further.
What it means for investors
For shareholders in Pekao and its Polish peers, the higher bank tax is a known headwind, but the bigger swing factor into 2026-27 may be the strength of the net interest income engine. If loan growth stays solid and deposit costs remain contained, banks can still grow profits even with a larger tax bill.
That dynamic isn't unique to Poland. Across Europe, banks have been navigating higher taxes and regulatory costs while leaning on interest income to drive results. As seen with SocGen's trading surge and Sabadell's standalone strategy, the ability to generate core revenue is often what separates winners from laggards.
For everyday investors, the takeaway is that a single quarter's tax hit isn't necessarily a red flag. What matters more is whether a bank can grow its underlying earnings power. Pekao's beat suggests that, despite the higher levy, its core business remains healthy.
Still, the sector faces ongoing risks, including potential further legal claims related to Swiss franc mortgages and the possibility of more tax changes if Poland's defense spending needs grow. Investors will likely watch how these factors evolve alongside interest rate decisions from the central bank.
In the meantime, Pekao's results offer a reminder that even when governments raise costs on banks, strong fundamentals can still shine through.
