Interest rates at record lows, what now?

Last week the central bank of Poland reduced interest rates by a full 0.5% with the headline rate now standing at an all time low of 1.5%. Most commentators believe the main reason for the move is the fact that the Polish economy is dangerously close to deflation. Now the reason deflation is a bad thing is the fact that consumers hold off purchases expecting proces to fall and manufacturers reduce stock. Which causes a down turn. So maybe holding interest rates relatively high was a bad move (hindsight is of course a wonderful things).

The question however remains as to whether near zero interest rates will in fact encourage businesses to borrow for investment and for consumers to buy more goodies (such as TV’s) on credit. As far as consumers are concerned it would appear that the major consideration with credit purchases is the amount of monthly repayments and not the rate of interest. For a short while the news of interest rate reductions can cause a feel good factor and of course for those with significant mortgages their disposable income increases. For corporations the key issue remains whether they believe that investment will pay off and whether the banks will be willing to lend.

There is another aspect to the equation. The central banks world wide primarily look to keep inflation within a narrow range. All well and good but what do the indexes measure? The average shopping basket which in a quickly changing world soon becomes misleading. And of course the inflation indicators do not measure asset inflation. With surplus funds looking for a home we have already seen a dramatic increase in house prices in the UK (well the South East at least). Stock markets have also bounced back.

But what of Poland? Will businesses invest in research and development and new technology as we are told is vital to achieve the next level of growth? Only if they believe there will be a market for the products. John Palmer from BNP Paribas Real Estate reports in a current review that the yield rate on Polish logistics properties has fallen to 7.15% to 7.25% having previously tested double figures and vacancy rates have dropped to 5.7%. The yield rate shows clearly that investors are back in the market whilst the fall in vacancy rates suggests that businesses are gearing up for increases in sales and hence need for warehouse space. Time will tell whether these are the first signs of growth rates increasing.

One of the key issues is that for the demand for employees to grow the Polish GDP has to grow more than gains in productivity. With the government side tracked by the double elections and having fallen into the trap of acceding to demands from public employees (miners amongst others) there is little chance that the still remaining barriers to business are removed any time soon.

Boleslawiec and false conclusion

For those of my (Andrew Kinast wrote) readers who have lived as expatriates for any length of time in Poland Bolesławiec (or Bolly) was a must buy. For those who have not come across this necessity of ex pat life Bolesławiec is pottery decorated in characteristic pseudo peasant motifs manufactured in South- Western Poland. I know as I have a kitchen full of this stuff and very good it is too!!

The fact is that many/ most ex pats have moved on, most taking their collection of Bolly with them. The scenario of course is that following a natural calamity which wipes out most of life on earth future archeologists will dig up shards of Bolly in towns from New York to New Delhi and come to the completely wrong conclusion that at the turn of the 20th and 21st Centuries a tribe centered on Warsaw began a process of colonising the earth with the sole evidence being the remains of Bolly shops in Warsaw.

Actually there is a second point to the story. This very traditional Polish pottery is in fact manufactured in what was Germany before 1945 and the pottery is still to this day exported to Austria and Germany under the old name Bunzlau. Oh and one of the major distributors in Warsaw is a shop in Wilanów owned by a Korean lady! Quote my name and you may get a discount.

The real point I am trying to make is that causality is a very dangerous beast. The old joke about the 100% correlation between paper tissues and colds proving that using tissues causes colds is an extreme example of jumping to wrong conclusions.

A more tenable causality is human activity and global warming. Don’t get me wrong, I firmly believe we should not squander natural resources and in particular energy. But look at the evidence. At one stage in the dim and distant past Poland was a major producer of wine (from grapes and not mouldy strawberries!) whilst in Jacobean times the Thames regularly froze over to the extent that fairs were held on the ice. So human action could be one of the factors in the current weather pattern changes but not the only one.

So why are EU manufacturers penalised with carbon taxes whilst the US and China just pays lip service?

And on the NIMBY (not in my back yard) principle I would far rather have a shale gas fracking tower next door than swishing windmills. Oh and guess how long it takes on average for a windmill to negate the carbon dioxide emitted during its manufacture. Yes 17 years!!! And why are power generators in favour of ever more energy saving building material legislation? Yes that’s right as the extra energy needed to manufacture triple glazing is far higher than the energy saving in the foreseable future. And have a look at Jeremy Clarkson’s expose of the energy wasted in manufacturing the Toyota Prius.

A bit of healthy questioning of motives never goes amiss.

Substance over form

There are many areas where the British approach to both the law and to accounting regulations in particular has no real equivalent on the Continent (defined some time ago by the famous headline in the Sun newspaper “Fog in the Channel – Continent cut off).

One such area is the accounting concept of substance over form. This basically says that accounting treatment should follow the economic/ commercial reality of an event or transaction irrespective of what formal name it is given. For a very short period of time (beginning of the nineties) Polish accounting legislation contained substance over form “istota nad treścią” as an overriding accounting priciple. This in effect allowed common sense to prevail in situations where the Polish law had inadequate or indeed misleading definitions. One such area was indeed leasing.

However the lawyers very quickly enforced the removal of this principle arguing that Poland followed the Continental Code Napoleon which requires everything to be defined and in particular that the law should not allow the concept of substance to overrule the strict interpretation of the law.

This would be fine if the legislator was able to foresee all possible forms of transaction and in particular new forms of economic activity such as internet based trading etc. Given that the legislators are totally incapable of writing even simple legislation in a clear manner the result has been predictable.

The subject came up in a recent “round table” discussion where logic dictated that the accounting treatment could not follow the strict wording of contracts as the substance of the trade was actually materially different to that implied by the Polish translation of UK based contracts. Which leads to the nonsense of a completely different basis for preparation of local statutory accounts and that used for head office reporting.

Of course the Polish company could apply IFRS treatment but only if this was in respect of an issue not covered by the Polish accounting legislation.

Why o why has Poland not adopted IFRS for ALL companies and not just quoted entities and their subsidiaries. But then again what would the learned professors of bean counting do if no longer gainfully employed in writing local Polish accounting standards in the full knowledge that sooner rather than later the EU will get around to enforcing IFRS for all reporting requirements.

What will the New Year bring?

With crude oil prices at record lows, the Polish currency regaining streinght and with reasonable growth forecasts will 2015 be a good year for the Polish economy?

The Russian economy in meltdown and the Ukraine facing an uncertain future it would appear that the eyes of Western investors are once more turning to Poland as the country enters the last phase of significant EU contributions to the economy. The new financing round is more specifically targeted and should generate significant growth opportunities for business. On the horizon there are two elections, first presidential in the spring which the current incumbent should win easily and then in the autumn parliamentary elections where although PiS is likely to gain most votes the PO and PSL coalition should gain a working majority. Clearly there is a need for a credible opposition with the capacity to govern rather than being an eternal gadfly on the back of the nation. Will such an opposition emerge is however a moot point as the last several attempts resulted in a once only electoral breakthrough above 5% and were followed by the total collapse of support. But with little alternative available alternatives on the economic policy front and at best irrelevant populist posturing there is actually probably no space for an effective opposition. Such is the modern world linked and voter apathy best described by the French word ennui.


In the words of a former US President “the economy stupid…”.

The real key issue will be how soon European banks in general and Polish banks in particular start once again financing business investment. Or just maybe the old behemoths need to be encouraged to fail and a return to an old style seperation of retail and investment banking reintroduced. And when will banks learn that property values are not predestined to be on a continious upward turn. Maybe adding property inflation indicators to central bank measures of inflation might reintroduce some stability?

The truth is that Polish banks, having in the main part avoided the previous property bubble, are better placed to start financing real growth which is all to do with current and future consumption and not asset financing. As with all assets if no one can afford inflated property related costs and share values unrelated to future performance then we have the perfect recipe for the next crash.

Merry Christmas!

Dear Sirs,

Wishing you seasons greetings and a Prosperous New Year!


Szanowni Państwo,

Z okazji zbliżających się Świąt   Bożego Narodzenia  pragniemy złożyć życzenia Spokojnych Świąt i udanego Nowego Roku!

A SZYFTER_Once-upon-a-time -Acrylic-on-canvas

Zespół PKGT Audyt

Title of paint: “Once upon a time”, acrylic on canvas, duet, 2x80x150cm, 2014, Agnieszka Szyfter,

Make business and grow (in Poland). From the accounting point of view

In Poland the accounting principles and audit requirements are set out in the Law on Accounting.

The above regulations do not differ considerably from International Financial Reporting Standards (IFRS) and in the situations not regulated by the Law these standards can be applied. Moreover, entities as well as subsidiaries of entities quoted on a recognised EU stock exchange can prepare their financial statements in accordance with IFRS.

Statutory financial statements consist of: a balance sheet, profit and loss account, additional information, comprising of an introduction to the financial statements and additional information and explanations. Entities subject to obligatory audit are also required to prepare a statement of changes in equity (own funds) and cash flow statements.

The financial statements for the year must be accompanied by a management report on activity.

The accounting records, the financial statements and the management report must be prepared in Polish and in the Polish currency.

The financial statements should be prepared within 3 months from the balance sheet date and signed by all the members of the Management Board and the person in charge of maintaining the accounting records. The financial statements must be approved by an authorised body (usually the Annual General Meeting of Shareholders) not later than 6 months from the balance sheet date.

Within 15 days from the approval of the annual financial statements, the Management Board is obliged to present the documents for court registration purposes, together with an auditor’s opinion (if the requirement of an obligatory audit is applicable), a copy of the shareholders’ resolution approving the financial statements and resolving on allocation of profits/ loss coverage, and the management report on activity.

The approved annual financial statements must be kept in the archives permanently, whereas the accounting records, inventory documentation and other source documents must be stored for 5 years.

Audit Requirements

Annual financial statements of banks, insurance agencies, investment and pension funds and joint stock companies are subject to an obligatory audit and must be published.

The audit requirement also applies to the financial statements of other entities where in the year preceding the reporting year to which the financial statements relate, two of the following three conditions are met:

a) mid year employment level of 50 or more,

b) balance sheet totals of assets and liabilities as at the year-end were at least EUR 2,5 million,

c) turnover net of VAT (revenues from sales of goods and products and financial operations) exceeding EUR 5 million.